WORKPLACE LAW LOWDOWN | DOL Issues New Guidance On Test For Unpaid Internships

By: Karen L. Piper

01/18/18

On January 5, 2018, the Department of Labor (“DOL”) rescinded its 2010 six-factor test for determining whether a worker is an unpaid intern or an employee entitled to be paid.

Under the rescinded guidance, an intern was considered an employee unless the employer met all six factors. Unpaid intern programs often failed because the employer could not show it derived “no immediate advantage from the activities of the intern.”

The DOL concurrently issued new guidance for determining whether an intern should be classified as an employee. The new guidance adopted the “primary beneficiary” test established by the Second Circuit Court of Appeals in Glatt v Fox Searchlight Pictures, Inc. (2015). Three other federal appellate courts, including the Sixth (covering Michigan, Ohio, Kentucky and Tennessee), the Ninth and the Eleventh Circuits, also have used the primary beneficiary test.

Under the new test, the pertinent question is whether the intern or the employer is the primary beneficiary of the relationship. The new test has seven factors:

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The primary beneficiary test requires weighing and balancing all of the circumstances with no one factor being dispositive. The list of factors is not exhaustive; courts may consider other relevant factors. And, not all factors have to point in the same direction. The “touchstone” of the “analysis is the ‘economic reality’ of the relationship” – the test that is used to determine whether a worker is an independent contractor or an employee.

The new primary beneficiary test is more flexible and should make it easier for employers to provide intern programs, as long as the program is designed primarily to benefit the intern. Please contact any member of Bodman’s Workplace Law Group with questions about the new DOL guidance or any other workplace law issue.