Recently, the U.S. Department of Labor (DOL) announced that it was rescinding a guidance document on paying interns it issued in 2010. The former guidance suggested that employers need to apply a six-factor test to determine whether an intern must be paid.
However, the test has been rejected by several appellate courts throughout the country, causing the DOL to rethink its approach. The agency is now advocating for the “primary beneficiary test” that several courts have used. A recent high-profile case illustrates how the primary beneficiary test applies to internships.
The case was brought by a group of unpaid interns who worked for the Hearst Corporation, a company that publishes several magazines, including O, The Oprah Magazine. Hearst maintains internship programs at its various magazines. Each internship is unpaid, carries no expectation of future employment, and requires the participant to receive prior approval for college credit to participate.
Each of the unpaid interns participated in a Hearst internship program either during college or during the summer between college and graduate school. All of them admitted that the internship provided them an opportunity to gain valuable experience, knowledge, and skills related to their professional pursuits. However, they alleged that most of their assignments were menial and repetitive, and they didn’t receive close supervision or guidance during the internship.
What the Law Says
The Fair Labor Standards Act (FLSA) doesn’t provide a particularly illuminating definition of “employee”: an “individual employed by the employer.” Courts interpreting the law have established that not all workers qualify as employees under the FLSA. One of the key questions in the analysis is whether the worker or the employer is the primary beneficiary of the arrangement.
When an internship provides training that is similar to academic instruction, is tied to academic course work, or provides an opportunity for the student to earn academic credit and the employer accommodates the intern’s academic commitments and academic calendar, the intern is likely to be considered the primary beneficiary, and the internship can be unpaid.
By contrast, if the internship has the effect of displacing paid employees while providing limited academic benefit to the intern, the worker would likely be considered an employee entitled to minimum wage and overtime under the FLSA. In light of the DOL’s new stance, that “primary beneficiary” inquiry is the key question. It’s intended to be a flexible test, allowing a court to take all the factors discussed above into account.
Multifactor tests like the primary beneficiary test often result in a lot of cases falling into a gray area where it isn’t entirely clear which way the case will turn out. That being said, there are a few concrete steps you can take to increase the likelihood that your interns won’t be considered employees:
- Document at the outset of the internship that both parties understand that it will be unpaid and the intern has no expectation of future employment or compensation.
- Require that the intern’s academic institution approve the internship, and document that the internship will supplement the intern’s course work and, if applicable, count as academic credit.
- Schedule the internship to start and end based on the intern’s academic calendar. Alternatively, if the internship will run during the semester, allow the intern to tailor her schedule around her academic commitments.
- Assign the intern a specific mentor or supervisor who is responsible for overseeing her workload and ensuring that her tasks are varied and educational.
Court Weighs in
In Hearst’s case, the court reviewed the totality of the factors and the specific circumstances of the internships and ruled that the interns didn’t have to be paid. The court noted that it’s fine for a company to benefit from an internship as long as the intern receives identifiable educational or vocational benefits in return. Here, the majority of the factors weighed in favor of Hearst.
It was undisputed that the interns had no expectation of money or a future job when they started their internships. The court also noted that the interns received training opportunities in a real-world setting. Although the training didn’t resemble the type of instruction a student would receive in a classroom, that isn’t necessary it the internship allows the intern to develop skills applicable to his intended career.
As for the factors related to academic integration and compatibility with the academic calendar, the details varied for each intern, but the court found that the factors either favored Hearst or were neutral. The interns who received academic credit had little room to argue that the internship didn’t benefit them academically. Some interns who didn’t get preapproval for the internship didn’t receive credit, but that wasn’t Hearst’s fault.
The sole factor that clearly weighed in favor of the interns was the displacement factor. In other words, the fact that the interns performed unsupervised work that would ordinarily be performed by paid workers supported their claim that they should be paid. However, the court determined that factor alone didn’t decide the case, and because the other factors supported Hearst, the court ruled in favor of the company.
While courts in different parts of the country have already been applying the primary beneficiary test, the new DOL guidance makes it more likely that a federal court in Maine will adopt this approach, too. That gives you a bit more flexibility to argue that your internships should be unpaid. However, you still need to review your unpaid internship programs closely to make sure they comply with the new standard.