Considering Hiring an Unpaid Intern? Read this!

Last month, the Department of Labor announced a new test it will utilize to determine whether interns working for “for-profit” companies are entitled to wage and overtime protection under the Federal Labor Standards Act (“FLSA”).

Under FLSA, employers are required to pay their employees minimum wage and overtime. Of course, not all workers are “employees” for purposes of FLSA compliance–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.

Before its announcement, the DOL applied a six-part test to determine whether unpaid interns were actually employees for purposes of FLSA.

Over the past few years, however, litigation challenging the classification of unpaid interns has increased substantially. Under that test, to classify an worker as an unpaid intern, an employer had to establish: (1) the training provided was similar to what would be provided in a vocational school or academic educational institution; (2) the training was for the benefit of the interns; (3) the interns did not displace regular employees, but worked under their close supervision; (4) the employer derived no immediate advantage from the activities of the interns and occasionally had their operations impeded; (5) the interns were not necessarily entitled to a job after completion of the program; and (6) it was understood that the interns were not entitled to wages for the time spent training.

Each of the six criteria had to be satisfied to establish an intern was not an employee.

Over the years, litigation surrounding unpaid interns increased exponentially. 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 considered the approach taken by courts in announcing its new rule.

Under its new test, the DOL will examine the “economic reality” of the relationship between the employer and intern and assess who derives the “primary benefit” from the intern-employer relationship.

To guide the DOL, the following factors should be considered: (1) the extent to which the intern and employer clearly understand there is no expectation of compensation; (2) the extent to which the internship provides training similar to what would be provided in an educational environment; (3) the extent to which the internship is tied to the intern’s formal education program such as through integrated coursework; (4) the extent to which the internship accommodates the intern’s academic commitments; (5) the extent to which the internship’s duration is limited to the period in which it provides the intern with beneficial learning; (6) 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 (7) the extent to which the intern and employer understand that the internship is conducted without an entitlement to employment at its conclusion.

Unlike the previous rigid test, the factors above are not exhaustive. Moreover, the test applies to interns in a “for-profit” organization only. Unpaid internships for charitable non-profit organizations and the public sector are generally permissible; however, employers in those sectors should verify whether the unpaid intern actually qualifies as a true “volunteer,” which is a different analysis.

The DOL’s new test aligns with case law. While more flexibility exists, employers should carefully consider the DOL’s guidance when creating unpaid internship positions. The Law Firm of Alejandro Pérez possesses significant Labor and Employment Law experience has experience advising its clients on these critical issues. Don’t go through it on your own. Call our office with your questions.