Do New Labor Dept Rules Signal the Return of the Unpaid Internship?

The U.S. Dept. of Labor has announced it will use a new seven-factor test for deciding whether an internship position qualifies for an unpaid status under the minimum wage provision in the federal Fair Labor Standards Act. The guidelines shift the focus from whether the intern is the primary beneficiary of the relationship to whether the intern understands that there is no compensation and no promise of future employment. Those criteria include:

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.

Previously, DOL applied a six factor test to determine whether the intern was the “primary beneficiary” under an internship program. The Dept. of Labor stated its decision came after several legal challenges were filed by employers against the previous set of guidelines adopted in 2010 by the Obama administration. The DOL also said that even if one of the seven tests isn’t met, it doesn’t necessarily mean an intern should be paid. “Courts have described the ‘primary beneficiary test’ as a flexible test, and no single factor is determinative,” the government said in advisory. “Accordingly, whether an intern or student is an employee under the Fair Labor Standards Act necessarily depends on the unique circumstances of each case.”

Most companies have become gun-shy about offering unpaid internships after several successful lawsuits were brought by by interns. This new view from DOL however should make it easier for employers to institute unpaid internships in many States. Employers should issue a letter at the start if the internship making it clear that there is no guarantee of future employment; make the internship of limited duration – say 6-8 weeks at most; and give preference to those receiving college or graduate school credit for the internship. Some States, however, such as California, have their own more restrictive rules. In NY, for example, for-profit employers must still meet six additional requirements to offer unpaid internship opportunities:
1. The trainees or students are notified, in writing, that they will not receive any wages and are not considered employees for minimum wage purposes.
2. Any clinical training is performed under the supervision and direction of people who are knowledgeable and experienced in the activity.
3. The trainees or students do not receive employee benefits.
4. The training is general and qualifies trainees or students to work in any similar business. It is not designed specifically for a job with the employer that offers the program.
5. The screening process for the internship program is not the same as for employment and does not appear to be for that purpose. The screening uses criteria relevant only for admission to an independent educational program.
6. Advertisements, postings or solicitations for the program clearly discuss education or training, rather than employment, although employers may indicate that qualified graduates may be considered for employment.

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