In yet another blow to Obama-era Department of Labor (DOL) precedent, the DOL recently eliminated its six-part test for determining whether interns can be deemed employees for purposes of the Fair Labor Standards Act (FLSA), replacing it with a seven-factor test that has been endorsed by various federal circuit courts.

In a statement issued January 5, the DOL adopted the seven-factor test that was first promulgated by the Second Circuit in Glatt v. Fox Searchlight Pictures, Inc. Glatt held that courts should use the "primary beneficiary test" to differentiate between employees—who are entitled to certain protections under the FLSA, such as minimum wage and overtime—and interns, who are not. To determine whether the intern or the employer is the "primary beneficiary" of the relationship, courts analyze seven non-exclusive 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 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. 

Several federal appellate courts had already adopted the Glatt standard to find that interns in various industries were not employees and could not file class actions lawsuits against their employers.

The DOL's previous six-part test presumed that an individual was an employee under the FLSA unless that individual met all criteria of the intern test, including such factors as whether the internship was for the benefit of the intern and whether the employer derived an immediate advantage from the intern's activities. The Glatt test, on the other hand, is case-specific, flexible, and employer-friendly, making it more likely an individual will be deemed an intern not covered by the FLSA.

Nonetheless, employers should not take this change at the DOL as an open invitation to make wholesale changes to internship programs or to merely replace employees with unpaid interns in the hopes of saving on labor costs. Even under the new standard established by the DOL, internship programs still must be educational in nature and the intern must be the party who primarily benefits from the relationship; otherwise employers may face litigation under the FLSA, which could result in liability for civil monetary penalties, back pay, and liquidated damages. Finally, employers should be careful to fully analyze state law in their respective jurisdictions, as states can implement different, and perhaps stricter, standards.