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U.S. Department of Labor Adopts ‘Primary Beneficiary’ Intern Test

By Owen H. Laird, Esq., and Edgar M. Rivera, Esq.

Recognizing the unequal bargaining power between employees and employers, employment laws such as the Fair Labor Standards Act (FLSA) create rights and protections for employees. And, while identifying whether a worker is an employee or not may seem relatively straightforward at first glance, the question can, in reality, be surprisingly complicated. Between traditional employees, independent contractors, and paid and unpaid interns, modern workplaces include a variety of different types of workers, only some of whom are entitled to the rights and protections created by laws like the FLSA.

A recent decision by the U.S. Department of Labor (DOL) changed the standard by which the DOL determines whether interns qualify as employees under the FLSA for the purposes of minimum wage and overtime rights. In 2010, the DOL adopted a six-factor conjunctive test for interns, whereby a legitimate internship relationship would exist only if all six factors were met. Those factors were:

(1) the internship 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 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.

In other words, an employer needed to show that all six factors were present in order to exempt its interns from the FLSA’s minimum wage and overtime requirements.

In its 2015 decision in Glatt v. Fox Searchlight Pictures Inc., however, the Second Circuit held that the “primary beneficiary” test—not the DOL’s six-factor test—is the test to determine whether a worker is an employee or an intern under the FLSA. The primary beneficiary test balances the following non-exhaustive factors:

(1) the extent to which the intern and the employer clearly understand that there is no expectation of compensation;

(2) the extent to which the internship provides training that would be similar to that which would be given in an educational environment;

(3) the extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic calendar;

(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; and

(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.

Unlike the six-factor test, the primary beneficiary test does not require the employer to prevail on each of these items; instead, the court is to balance these factors, as well as any other potentially relevant factor, in reaching a decision.

Because the primary beneficiary test balances several factors, rather than requiring the employer to satisfy a set of conditions, it is generally more lenient to employers, allowing them to more easily avoid the FLSA’s minimum wage and overtime requirements for their interns. Since the Glatt decision, several other circuit courts also have adopted the “primary beneficiary” analysis, most recently the Ninth Circuit in Benjamin v. B&H Educ., Inc.  And, on Friday, January 5, 2018, the DOL itself issued a letter adopting the “primary beneficiary” analysis.

The new test favors employers, who often view internships as an opportunity for free labor, rather than a vehicle to full-time employment or a future career. According to Malcolm Harris, author of Kids These Days: Human Capital and the Making of Millennials, “Internships are no longer by and large a means of professional reproduction; rather, they have become an easy way for employers to take a free dip in the flexible labor pool. Instead of an investment in the future, unpaid internships are extractive.”

The adoption of the primary beneficiary test over the six-factor test means that fewer interns will be treated as employees under the FLSA, and more young people will be working without pay. While some people, perhaps remembering their own internship experiences, may believe that working long hours as an unpaid intern serves as a rite of passage into the workforce, we believe that interns should be paid for their work, especially when those internships provide little to no opportunity for advancement.

If you are not being properly compensated for your work, contact The Harman Firm, LLP.

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