DOL Abandons 6-Factor Internship Test

The U.S. Department of Labor has updated its fact sheet on internship programs to adopt the
"primary beneficiary" test followed by the Second, Sixth, Ninth and Eleventh Circuit Courts of Appeals. It previously used a six-factor text that refused to allow unpaid internships under the Fair Labor Standards Act if the employer derived any immediate advantage from the relationship. The new seven-factor test adopts a flexible approach, with no single factor being determinative. The seven factors are:

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 Department relied on the following Court of Appeal decisions in formulating its test:

Solis v. Laurelbrook Sanitarium and School, Inc., 642 F.3d 518 (6th Cir. 2011).

Schumann v. Collier Anesthesia, PA, 803 F. 3d 1199 (11th Cir. 2015).

Glatt v. Fox Searchlight Pictures, Inc., 811 F. 3d 528 (2nd Cir. 2015).

Benjamin v. B & H Education, Inc., Case No. 15-17147 (9th Cir. Dec. 19, 2017).

Federal Appellate Court Rejects DOL Six-Factor Intern Test

In September 2013, two interns who had worked without pay on Fox Seachlight's Black Swan movie convinced a United States District Judge that they were actually employees and should have been paid. That judge based his ruling on a six-factor test that the U.S. Department of Labor derived from the Supreme Court's decision in Walling v. Portland Terminal Co., 330 U.S. 148 (1947):

1. 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;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. 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;
5. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

On July 2, 2015, the Second Circuit Court of Appeals reversed the ruling in Glatt v. Fox Searchlight Pictures, Inc., Case No. 13‐4478‐cv (2nd Cir. July 2, 2015). It rejected the Department of Labor text, and stated that decisions about whether interns are employees under the Fair Labor Standards Act rest on whether the intern or the employer is the primary beneficiary of the relationship. For guidance in cases to come, the court offered the following seven non‐exhaustive set of considerations:

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.

Is "Unpaid Intern" An Oxymoron?

A recent lawsuit by two interns who worked on the movie "Black Swan" challenges what is reportedly a widespread practice in the film industry -- using unpaid interns to do work that ordinary employees also do. The New York Times website has an article on the lawsuit here. The complaint in Glatt v. Fox Searchlight Pictures, Inc., Case No. 11-CV-6784 (Sep. 28, 2011) alleges violations of the minimum wage and overtime provisions of the Fair Labor Standards Act.

The issue is important, because the practice extends outside the movie industry, and poses substantial liability risks for employers. An April 2010 New York Times article reported on the widespread use of unpaid interns and enforcement efforts by wage and hour agencies. An OregonLive.com article around the same time described some enforcement actions in Oregon.

The U.S. Labor Department uses the following six factors to determine whether a worker is an employee or an intern:

1. 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; 
2. The internship experience is for the benefit of the intern;  
3. The intern does not displace regular employees, but works under close supervision of existing staff; 
4. 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;  
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and  
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

The Department explains the factors in a fact sheet available on its website.

The six-factor test has had a mixed reception in the courts. Recently, the Sixth Circuit Court of Appeals labeled it a "poor method for determining employee status in a training or educational setting," in upholding the dismissal of a Department child labor enforcement action against a non-profit that required students in its school to work in its nursing home as part of their practical training. Solis v. Laurelbrook Sanitarium and School, Inc., 642 F.3d 518 (6th Cir. 2011). That court adopted the more popular "primary benefit" test, which looks at whether the trainees receive the primary benefit of the work they perform. Other courts have been more receptive. Harris v. Vector Marketing Corp., 716 F.Supp.2d 835 (N.D. Cal. 2010).

We previously discussed this issue in an April 2010 post, which contains links to other resources, including the California standards for determining whether an intern is subject to the wage and hour laws (which are similar the the Department of Labor standards). Since that post, the California Division of Labor Standards Enforcement has issued an opinion letter finding that interns enrolled in a structured 11-month educational and training program were not employees.

Although not all courts follow the Department of Labor's six-factor test, employers would be well advised to use it when determining whether to treat interns as employees. This is particularly so in light of the increased attention that the issue has received from regulators over the past couple of years.

UPDATE: NPR ran a story on the lawsuit by the Black Swan interns on November 16, 2011.

UPDATE [2/3/2012]: As reported at the ABA Journal Law News Now website, former Harper's Bazaar intern Xuedan Wang filed a wage and hour lawsuit in the United States District Court in Manhattan on February 1, 2012, alleging that she was never paid for work that she performed just like other employees.

UPDATE [6/25/2013] In a June 11, 2013 decision, the judge in the Black Swan lawsuit ruled that the movie interns were employees entitled to minimum wage and overtime under the FLSA. Judge Pauley applied the six-factor Department of Labor test, rather than the "primary benefit" test urged by the employer. For an application of that test to students providing kitchen and housekeeping services at a nursing home as part of an educational program, see Solis v. Laurelbrook Sanitarium and School, Inc., 642 F. 3d 518 (9th Cir. 2011).

There's no such thing as a free intern

In these tough times, when employers are looking for every possible way to save money and students are desperate for jobs, be careful about practices that might run afoul of the wage and hour rules. Employers are frequently approached by students who are willing to work for nothing in order to make contacts that will help them find a paid job. As a general rule, such arrangements are not legal. Employers must pay anyone who provides services at least the minimum wage (which is $8 per hour in California). There is a limited exception for interns who qualify as trainees. This requires that the intern (1) be part of a program similar to training that would be provided at a vocational school, (2) be the target of the benefits of the program, (3) not displace regular employees but work under close observation, (4) not provide any immediate advantage to the employer through his or her work, (5) not be entitled to a job at the end of the internship, and (6) understand that no wages will be paid.

The U.S. Department of Labor recently issued a guidance letter about training and employment that explains the six factors the agency uses to determine whether a worker is a trainee or an employee. Further insight into the application of the factors is available in a May 2004 opinion letter from the Department's Wage and Hour Division. The letter discusses the use of student interns to practice marketing on their college campus.

The California Labor Commissioner's Division of Labor Standards Enforcement uses a similar test for determining whether an intern is a trainee or an employee. The test is explained in a 1996 opinion letter, which concluded that students used to perform routine work on movie studio lots were probably employees, even though they received college credit for what they did.