New Rules for Internships

The U.S. Department of Labor (DOL) has updated its internship fact sheet to help employers determine whether interns and students working for “for-profit” employers are entitled to minimum wages and overtime pay under the Fair Labor Standards Act (FLSA).

For-profit employers are required to pay employees for their work. Whether interns and students are “employees,” however, has been the subject of debate—and numerous court cases.

Making a Determination

The DOL indicates that courts have used the “primary beneficiary test” to determine whether an intern or student is an employee under the FLSA. Basically, this test examines the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship.
Courts have identified the following factors as part of the test:

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 DOL indicates that courts have described the “primary beneficiary test” as a flexible test, and points out that no single factor is determinative. It also notes that whether an intern or student is an employee under the FSLA depends on the circumstances of each case.

Avoiding Litigation

Still, employers will want to proceed with attention to DOL guidelines, to avoid having a case become a court case.
While employers may come out on the winning end – as in Benjamin v. B&H Education, where the court ruled that cosmetology students were interns and not entitled to pay under the FLSA – litigation can be time consuming, as well as costly from the standpoint of legal expenses.
When a company loses, a lawsuit can prove even more costly. Glatt v. Fox Searchlight Pictures, Inc., brought by interns who worked without pay on Black Swan and other film projects, was reportedly settled for approximately $276,000.

Paula Santonocito, Contributing Editor for Recruiting Daily Advisor, is a business journalist specializing in employment issues. She is the author of more than 1,000 articles on a wide range of human resource and career topics, with an emphasis on recruiting and hiring. Her articles have been featured in many global and domestic publications and information outlets, referenced in academic and legal publications as well as books, and translated into several languages.