July 26, 2018, is National Intern Day according to WayUp, the job site for college students and recent graduates. The organization’s campaign to acknowledge the role of interns in the workforce is intended to “encourage[] employers to celebrate, empower and recognize interns.” WayUp encourages employers to participate in the “holiday” by celebrating their interns (“anything from a mentorship session to a free pizza lunch or anything that feels right for your company”).

From an employment law perspective, the primary issue about internships is whether an intern is actually an employee—in which case the employer would be required to comply with the Fair Labor Standards Act’s (FLSA) pay requirements. As you celebrate National Intern Day, here are a few things to keep in mind about establishing a lawful intern program at your organization.

The Now-Defunct Old Test

In April 2010, the U.S. Department of Labor (DOL) issued Fact Sheet #71—“Internship Programs Under the Fair Labor Standards Act”—which required employers to show the existence of six criteria for an unpaid internship to be excluded from the Fair Labor Standards Act’s (FLSA) pay requirements.

Backlash Among the Circuit Courts

Over the years, a number of courts rejected the Obama administration’s six-prong test. Four circuit courts of appeals rejected the test:

1. The Sixth Circuit Court of Appeals rejected the DOL’s six-factor test in a 2011 case challenging a Tennessee school’s training program.
2. In 2015, the Eleventh Circuit also opted for an alternative test in a case brought by former students who were required to participate in an unpaid clinical curriculum to obtain master’s degrees.
3. The Second Circuit also rejected the DOL’s six-factor test in favor of a non-exhaustive list of considerations that courts can analyze when deciding if a worker is an intern or employee.
4. The straw that broke the camel’s back was a Ninth Circuit case that the DOL cited as one of its reasons for finally doing away with the six-factor test: “On Dec. 19, 2017, the U.S. Court of Appeals for the Ninth Circuit became the fourth federal appellate court to expressly reject the U.S. Department of Labor’s six-part test for determining whether interns and students are employees under the Fair Labor Standards Act (FLSA).”

The New “Primary Beneficiary” Test

As a result of the backlash, on January 5, 2018, the DOL issued a new Fact Sheet #71 that formally adopts the primary beneficiary test that the disgruntled circuit courts had favored. According to this test, if an intern is the “primary beneficiary” of the relationship, then he or she is not entitled to either the minimum wage or overtime pay under the FLSA. If, on the other hand, the employer is the primary beneficiary, it may be required to treat the intern as an employee in terms of pay.

Under the new Fact Sheet #71, employers should consider the following seven factors:

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 fact sheet echoes courts’ descriptions of the primary beneficiary test as “flexible” and states that “no single factor is determinative.” Instead, “whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case.” 

Final Considerations

Employers will want to keep in mind that unpaid internships in the public sector and for nonprofit charitable, religious, civic, or humanitarian organizations are still “generally permissible.” The new test is largely aimed at “for-profit private” businesses.

Also, the new test only affects the analysis of whether an intern should be treated as an employee under federal law. States and local jurisdictions can impose stricter requirements on employers. Employers may want to take precautions to ensure that their internship programs comply with all applicable laws.