DOL Adopts More Flexible Test to Determine When Interns Must Be Paid Under The Fair Labor Standards Act

Employment Law

DOL Adopts More Flexible Test to Determine When Interns Must Be Paid Under The Fair Labor Standards Act

Feb 13, 2018 | Employment Law

Just as many employers are heading into the 2018 summer-intern recruitment season, the U.S. Department of Labor (“DOL”) announced that it has abandoned the rigid six-factor test in use since 2010 to determine whether interns of for-profit entities must be treated as paid employees. Under the DOL’s previous six-factor test, an intern was deemed to be an employee unless all six-factors were met, increasing the likelihood that an employer would end up having to pay its interns a minimum wage and overtime under the Fair Labor Standards Act (“FLSA”).

The DOL pulled back its six-factor all-or-nothing approach after the Ninth Circuit Court of Appeals became the latest federal circuit to reject the agency’s overly-rigid approach to determine whether an intern or student is, in fact, an employee under the FLSA. In its place, the DOL has adopted a “primary beneficiary test,” which allows the agency and courts to examine the economic reality of the intern-employer relationship to determine which party is the primary beneficiary of the relationship.

Under the DOL’s flexible economic realities test, an employer need not pay a minimum wage or overtime to a student intern or vocational student who is viewed as the primary beneficiary of the intern-employer relationship, applying a seven factor test under which all seven factors are weighed and balanced against each other and no single factor is determinative. The seven factors are:

  1. The extent to which the intern and 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 equivalent to that which would be given in an educational environment, including clinical or other hands-on training provided by educational institutions
  3. The extent to which the internship is tied to the intern’s formal educational program by integrated course work or 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 undertaken without entitlement to a paid job at the conclusion of the internship.

With the DOL’s reliance on the economic realities, student interns who get the primary benefit of the relationship with the hiring entity are less likely to be seen by the DOL as employees. This should translate to fewer situations where a hiring entity will need to pay student interns a minimum wage or overtime and a reduced risk of ending up in court defending against a student intern law suit under the FLSA.

LinkedIn

Follow us on LinkedIn to view the latest blogs from our team.

About – Business Insights

Our business blog focuses on issues affecting Virginia, D.C. and Maryland business owners as well as those in other jurisdictions throughout the country. We provide timely insight and commentary on federal and state rules and how they affect you. If you are interested in having us cover a specific topic, please let us know.

About – Employment Law

As employment law constantly changes, the attorneys at Bean, Kinney & Korman stay up to date on the law as it develops. Our blog topics focus on those changes and what you need to know about them, ranging from severance agreements and the FLSA to social media in the workplace and recent court decisions. If you are interested in having us cover a specific topic, please let us know.

About- Real Estate

This blog focuses on real estate, land use and construction-related topics affecting Virginia and the Washington, D.C. metro area. With topics ranging from contract drafting and negotiation to local and regional land use project updates, the attorneys at Bean, Kinney & Korman provide timely insight and commentary on the issues affecting owners, builders, developers, contractors, subcontractors and other players in the industry. If you are interested in having us cover a specific topic, please let us know.

Understanding the Pros and Cons of Pay Transparency

Pay transparency – the degree to which employers are open about pay information or are permissive of employees talking with each other about pay -- is becoming increasingly popular among employers. By sharing and facilitating the discussion of salary information,...

What Employers Need to Know About Office Holiday Parties

The holiday season is here, and it's the most wonderful time of the year! With the winter holidays just around the corner, are you one of the many businesses busily preparing for a holiday office party? Office parties are a wonderful way to generate good will with...

New “Know Your Rights” Poster Issued by the EEOC

Last week, the U.S. Equal Employment Opportunity Commission (EEOC) released an updated version of the “EEO is the Law” poster that covered employers are required by federal law to post in a conspicuous workplace location. The new “Know Your Rights” poster includes...