In recent years, employers have used unpaid interns to perform many duties otherwise completed by paid employees. Determining whether to classify a worker as an unpaid intern or employee under the Fair Labor Standards Act (“FLSA”) can be tricky for employers—and getting it wrong can have, and has had, serious consequences. With the recent boom in class action litigation by interns claiming misclassification, employers have to be careful.
Earlier this month, the U.S. Department of Labor (“DOL”) announced the adoption of a new standard to determine who is an “intern” under the FLSA, opting to utilize the “primary beneficiary” analysis already used by several federal appellate courts.
Prior to this recent announcement, the DOL took the position that interns in the “for profit” private sector were generally employees that must be compensated, unless the employer could demonstrate the worker fell under a narrow exception. This exception for interns involved satisfying a six-factor test focused on areas including if the parties understood the position was unpaid, if the internship would necessarily lead to a job, if the internship was educational in nature and benefitted the worker, and whether the intern replaced any employee. Employers had to establish all six criteria in order to classify someone as an intern.
Several Circuit Courts, including the Second, Ninth, and Eleventh Circuits, rejected the DOL’s old six-factor test as too restrictive. These Courts instead adopted what they argued was a more flexible seven-factor analysis focused on which party is the “primary beneficiary” of the employer-intern relationship. Said another way, the primary beneficiary test evaluates whether the internship is primarily educational (i.e., for the benefit of the individual) in nature and, only if it is, would the court find that an intern classification appropriate. Importantly, in stark contrast to the DOL’s prior test, this primary beneficiary analysis involves a balancing test, with no one factor being determinative.
Having now adopted the primary beneficiary test, the DOL also has suggested it will update its enforcement policies to be consistent with the test. The Department has already revised the fact sheet describing the “primary beneficiary” analysis.
Because no single factor in the primary beneficiary test is conclusive, the DOL’s announcement merely provides “guidance” to employers in assessing whether to classify workers as either interns or employees. Since there is no bright line rule, employers will continue to face a challenge in making the ultimate determination about the appropriate classification. However, given the shift in the DOL’s position, at least employers will face a lower burden of proof.