Organizations can provide students with work opportunities that help them explore career interests and gain job skills. This experience can make them stand out and become more marketable at the time of securing employment. Internship programs can also serve as a recruitment vehicle for an employer, if properly implemented.
Often, employers offer unpaid internships, usually to students or trainees. However, there are restrictions as to when employers can offer unpaid internships. Under the Fair Labor Standards Act (FLSA), an internship can be unpaid only if the employer is a nonprofit organization,[1] if the intern earns formal college credit on the job, or if the employer provides training and learning opportunities to the intern.
The payment of an intern has been traditionally decided under a six-factor test or “trainee exception” to the requirements for employee compensation under the FLSA. However, this test has been recently challenged and displaced in Florida and other jurisdictions by the “primary beneficiary” analysis.
The DOL’s Trainee Exception
To assist for-profit employers, the U.S. Department of Labor (DOL) established a “trainee exception” consisting of a six-part test for use in determining whether or not an intern must be paid as an employee under the FLSA. Under this test, if all the six factors are met, then an intern is not an employee, and therefore the FLSA minimum wage and overtime provisions do not apply to the intern. The six factors are:
- The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
The Primary Beneficiary Test
On July of 2015, the Second Circuit Court of Appeals in Glatt et al. v. Fox Searchlight Pictures, Inc. rejected the DOL’s “six-factor test” in favor of a “primary beneficiary” analysis, and remanded the case to the lower court with instructions to apply the latter test, instead. The Glatt court showed sensitivity towards the exploitation of student interns by an employer; one such student worked ten-hour days arranging furniture, taking lunch orders, and throwing out trash.
The primary beneficiary test looks at whether the intern or the employer is the primary beneficiary of the relationship. The test has two salient features that allow courts to examine (1) what the intern receives in exchange for his work, and (2) the economic reality between the intern and the employer. Under this analysis, the intern can be considered an employee only if the employer benefits more from the relationship than the intern. If so, the intern must be paid lawful compensation. The Second Circuit Court of Appeals considered various non-exhaustive factors to aid in the determination regarding unpaid internships at for-profit employers, including:
- The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, whether express or implied, suggests that the intern is an employee—and vice versa.
- 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 the 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 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.
The court stated that the factors must be balanced against the circumstances of every situation, and that no factor should be given more weight than another.
On September of 2015, the Eleventh Circuit (which covers Florida) adopted the Second Circuit Court of Appeals primary beneficiary analysis in the case of Schumann v. Collier Anesthesia. The court stated that the DOL factors test arose from an older case, Walling v. Portland Terminal, with dissimilar circumstances from modern “longer-term, intensive” internships that are required to obtain degrees or certifications. The court noted, regarding the duration of the internship, that “grossly excessive” lengths suggest that an internship program primarily benefits the employer. The court also suggested the examination of the extent to which interns displace other employees.
Best Practices
For-profit Florida employers must now design their unpaid internship programs considering the Glatt primary beneficiary analysis, as well as the DOL six-factor test. Since liability for non-compliance could be onerous,[2] employers should consult knowledgeable employment counsel when developing and implementing their internship programs. For example, it is important that the intern receives educational benefit and is not performing routine work such that the business depends on the intern’s work, as it would depend on an employee. In addition, internships should not primarily benefit the employer, and they should always last for a limited “non excessive” duration.
Interns who believe they should have received compensation during their internship have an initial burden to prove that an employer-employee relationship existed and that the activities in question constitute employment under the FLSA. To assess a compensation situation, interns should consult with an attorney knowledgeable in employment law.
Whether you are an employer, employee, or independent contractor, the Orlando employment law attorneys of Burruezo & Burruezo can assist you in assessing an intern and trainee compliance and compensation situation and offer competent legal representation, if necessary. Click here to contact an attorney now.
[1] In this case, this type of work is classified as “volunteering.” See Volunteers blog article for more information.
[2] See Wage and Hour Claims, Minimum Wage and Overtime Pay blog articles for additional information.