On occasion, many businesses provide unpaid internship opportunities. However, it is important to be sure the unpaid internship does not run afoul of the Fair Labor Standards Act, as some companies have learned the hard way that rather than having an unpaid intern they had an “employee” and ended up with wage and hour liability. Just this January the federal DOL, in light of several recent federal appellate court decisions, revisited its guidance on how businesses can determine whether their interns are, or are not, properly classified as such. Whether the business ends up owing the intern hinges on carefully adhering to this guidance!
DOL, following the court rulings, applies a “primary beneficiary test” intended to identify which party to the relationship obtains the greatest benefit from the internship. The test is grounded in the following seven factors:
- 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.
- 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.
- The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of 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.
No single factor is determinative, but it is safe to say that the greater the connection between the internship and a formal academic program the more likely it is that the intern will not be your employee. Thus, factors 3, 4 and 5 deserve your attention, and the internship must always provide clear educational benefit to the intern. And, naturally, the intern should never displace a paid employee. When in doubt, considering the potential liability for unpaid wages, be sure that at a minimum your HR department has been consulted, and possibly legal counsel too.