Set Up a Proper Intern Program

Some employers annually look forward to the prospect of free summer labor provided by unpaid interns. But not every intern should be unpaid.
 
In 2010, the U.S. Department of Labor adopted a six-factor test to determine whether a person could lawfully be classified as an unpaid intern under the federal Fair Labor Standards Act. If all six factors were not met, the intern needed to be paid and treated just like any other paid employee, e.g., paid minimum wage and overtime eligible. A number of cases were brought by interns challenging their unpaid intern status. In the 2015 case of Glatt v. Fox Searchlight Pictures Inc, 811 F.3rd 528, the Second Circuit Court of Appeals deviated from the rigid six-factor test and adopted a more flexible seven-factor test that placed the focus on which party -- the employer or the intern -- was the “primary beneficiary” of the internship. To answer that question, the court analyzed whether the internship was primarily for the educational benefit of the intern or for the financial, cost-saving benefit of the employer. In January 2018, the DOL issued a new guideline that adopts the flexible seven-factor “primary beneficiary” test from Glatt.

SEVEN FACTORS FOR DETERMINING “PRIMARY BENEFICIARY” OF INTERNSHIP

The seven DOL factors that determine whether a worker may be classified as an unpaid intern are stated below. No single factor is, by itself, dispositive. The failure to meet any one or more of the seven factors does not automatically mean that the internship is not primarily for the educational benefit of the intern.

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.

WHAT ABOUT VOLUNTEERS?

As the DOL Guidelines indicate, there is an exception under the Fair Labor Standards Act for “individuals who volunteer their time freely and without anticipation of compensation, for religious, charitable, civic, or humanitarian purposes for non-profit organizations.” Effectively, if one volunteers his or her time in this manner to a not-for-profit entity, doing so does not run afoul of the new intern laws -- even if the employer is the primary beneficiary under application of the seven-factor test.

BEST PRACTICES FOR EMPLOYERS WISHING TO USE INTERNS

To help establish that the intern is the primary beneficiary under the seven-factor test above, there are a few actions employers may wish to take.

• First, when posting for an internship position, the ad should indicate that college students who can earn college credits are given priority.
• Second, when offering the intern position to the selected candidate(s), the offer letter should expressly state that the position is not paid and that there is no guarantee that the intern will receive paid employment with the employer in the future.
• Third, if possible, the employer should implement a formalized internship program that details all aspects of the internship, including duration, precise start and end dates, and a detailed schedule of any rotations, etc., within the organization that will occur during the intern’s tenure.

This material is intended to offer general information to clients and potential clients of the firm, which information is current to the best of our knowledge on the date indicated below. The information is general and should not be treated as specific legal advice applicable to a particular situation. Fletcher Tilton PC assumes no responsibility for any individual’s reliance on the information disseminated unless, of course, that reliance is as a result of the firm’s specific recommendation made to a client as part of our representation of the client. Please note that changes in the law occur and that information contained herein may need to be reverified from time to time to ensure it is still current. This information was last updated May 2018.