U.S. Court System Teaches the DOL a Lesson; Then DOL Decides to Give Credit to Student Interns Rather Than Pay

On January 5, 2018, the Trump administration issued an overhauled Fact Sheet #71, which formally adopts a more flexible “primary beneficiary/economic reality” test for unpaid internships. The new fact sheet sides with several federal courts that have rejected the Obama administration’s mandatory six-prong test for whether a worker can properly be classified as an unpaid intern under the Fair Labor Standards Act (FLSA).

 Six Versus Seven Required Criteria

In April 2010, the U.S. Department of Labor (DOL) issued Fact Sheet #71 requiring six factors to be met before an unpaid intern could safely be categorized as such and excluded from pay requirements of the FLSA. Meanwhile, the Sixth Circuit, Eleventh Circuit, Second Circuit, and Ninth Circuit all rejected this strict test. Recently, the DOL assisted both interns and for-profit employers when it issued a revised Fact Sheet #71, essentially complying with these circuit courts’ guidance on this issue. As a result, the following seven factors constitute the new test for internships:

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 made clear that “no single factor is determinative” and the ultimate answer depends on the “unique circumstances of each case.” Moreover, the DOL’s revamped fact sheet refers to the seven factors “as part of the test”—leaving it open-ended and to be analyzed on a case-by-case basis.

Key Takeaways for Employers 

The DOL’s new test makes it easier to create unpaid internship programs that are lawful under federal law as long as the answers to the seven questions show that—on balance—the intern or student benefits more from the relationship than the employer does. In order to ace the test, a business will want to attempt to structure its program such that all seven factors lean toward an internship—rather than an employer-employee relationship. Employers should keep in mind that this development only affects the analysis under federal law. Employers will still want to confirm that their internship programs comply with all applicable state and local requirements.

We have previously blogged about some of these developments over the years, e.g., “Is the Six-Factor Test Still Good? Eleventh Circuit Endorses Modified Intern Test” (October 1, 2015), “A New Internship Standard—The Second Circuit’s Seven-Factor Test and What it Means for Your Company” (July 13, 2015), and “Work for Free and Maybe Meet a Celebrity? Probably Not a Lawful Internship!” (June 13, 2013), and those articles are hereby amended and overruled!

For more details on the six-factor test, the new Fact Sheet #71, and employers’ obligations towards interns, see our article, “DOL Gives Credit to Unpaid Student Interns After Getting Schooled by the Courts.”

Written by James M. Paul of Ogletree Deakins