It is getting closer to summer and that means students are looking for work experience. Many companies offer unpaid internships. While both the student and employer may see benefits to this arrangement – the employer doesn’t have to pay wages and the employee has work experience on their resume, it may not be a “free ride” for the employer. The Department of Labor utilizes criteria to determine whether interns working for “for-profit” companies are entitled to wage and overtime protection under the Federal Labor Standards Act (“FLSA”). Those rules were revised in 2018 and employers need to use the new test.
Under FLSA, employers are required to pay their employees minimum wage and overtime. Of course, not all workers are “employees” for purposes of FLSA—for example, unpaid interns are not considered employees. Of course, just because an employer classifies a worker as an unpaid intern doesn’t make it so. As is the case with all legal queries, whether an employer has adequately classified a worker is a fact-driven inquiry.
Prior to January 2018, the DOL applied a six-part test to determine whether unpaid interns were actually employees for purposes of FLSA. That test, which consisted of six factors was rather inflexible because it required the plaintiff to establish all six factors.
Several courts, including the Second and Ninth Circuits, rejected the DOL’s six-factor test, favoring instead a more flexible and holistic analysis that simply asks who is the “primary beneficiary” of the relationship. The DOL uses the primary beneficiary test and economic reality test to access whether or not the intern or student is an employee. Arizona is located in the Ninth Circuit, so Arizona employers must pay attention to this more holistic and flexible analysis.
The Seven Factors that Should be Considered:
- the extent to which the intern and employer clearly understand there is no expectation of compensation;
- the extent to which the internship provides training similar to what would be provided in an educational environment;
- the extent to which the internship is tied to the intern’s formal education program such as through integrated coursework;
- the extent to which the internship accommodates the intern’s academic commitments;
- the extent to which the internship’s duration is limited to the period in which it provides the intern with beneficial learning;
- the extent to which the intern’s work complements (but does not displace) the work of paid employees and provides significant educational benefits to the intern; and
- the extent to which the intern and employer understand that the internship is conducted without an entitlement to employment at its conclusion.
These factors are not exhaustive. If, after factual inquiry, the student is in fact an employee, then the minimum wage and overtime provisions of FSLA apply. Before hiring unpaid interns, be sure to consult an experienced employment attorney.
About the Author: Alejandro Pérez is a partner at Jaburg Wilk. Fully bilingual, Alejandro assists employers of all sizes with labor and employment law issues. In addition to representing clients in litigation, Alejandro provides advice and counsel on HR decisions; conducts sensitive workplace investigations; drafts and reviews employment policies, handbooks, and agreements; and trains workforces on a variety of aspects of employment law.
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