By: Karen L. Piper
On January 5, 2018, the Department of Labor (“DOL”) rescinded its 2010 six-factor test for determining whether a worker is an unpaid intern or an employee entitled to be paid. Under the rescinded guidance, an intern was considered an employee unless the employer met all six factors.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:
- 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.
- 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.
- The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
- 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.
- 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 unpaid intern programs, as long as the program is designed to benefit primarily the intern. An employer considering establishing an intern program should carefully review the above factors and consult experienced employment counsel, such as the author, to ensure the program satisfies the primary beneficiary test.
This article was written by Karen L. Piper, who is Chair of the Legal Affairs Committee of Detroit SHRM, and a Member of Bodman PLC, which represents employers, only, in Workplace Law. Ms. Piper can be reached at Bodman’s Troy office at (248) 743-6025 or firstname.lastname@example.org. For further information, go to: http://www.bodmanlaw.com/attorneys/karen-l-piper.
Detroit SHRM encourages members to share these articles with others, inside and outside their organization, as long as its name and logo, and the author’s information are included in the re-post of the article. January 2018.