The Fair Labor Standards Act (“FLSA”), in pertinent part, sets a national minimum wage that employers must pay all employees who perform the kinds of activities covered by the Act. However, although the FLSA broadly defines “employ” as “to suffer or permit to work,” courts have continually held not all workers constitute “employees” for purposes of the FLSA. As the U.S. Supreme Court stated in the 1967 case Walling v. Portland Terminal Co., the FLSA’s definition of employ was “obviously not intended to stamp all persons as employees who, without any express or implied compensation agreement, might work for their own advantage on the premises of another. Otherwise, all students would be employees of the school or college they attended, and as such entitled to receive minimum wages.”
In recent years, the FLSA’s definition of “employ” has come under fire from unpaid student interns that seek compensation from their respective companies under the FLSA’s minimum wage requirements. Fortunately for employers, however, within the last year, two circuit courts (the Second Circuit and the Eleventh Circuit) have rejected these interns’ claims for compensation and established a new, employer-favorable test for determining whether an intern should be considered an employee under the FLSA.
Throwing out a six-factor test previously used by the Department of Labor to distinguish between interns and employees, the Second Circuit (and later the Eleventh Circuit) last year adopted a “primary beneficiary” test for determining whether an unpaid intern is an employee within the meaning of the FLSA. The Court stated simply that “[u]nder this standard, an employment relationship is not created when the tangible and intangible benefits provided to the intern are greater than the intern’s contribution to the employer’s operation.” To assist in making this determination, the Second Circuit provided a non-exhaustive list of factors to consider when evaluating internships:
- 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.
On March 29, 2016, the Southern District of New York applied the Second Circuit’s “primary beneficiary” test in an FLSA minimum wage case brought against the New York-based media company Gawker. In granting summary judgment in favor of the defendants, the District Court moved methodically through each of the seven factors, interpreting and explaining the importance of each. For example, with regard to the first factor, the Court noted that even though both the intern and the employer understood that there was no expectation of compensation, that fact “is of limited importance” under the FLSA. Indeed, the fact that the intern agreed to work for free cannot, standing alone, provide the employer with a favorable ruling given that the right to earn a minimum wage under the FLSA cannot be waived. Moreover, the Court found that: the intern was provided hands-on training; that the intern received academic credit for his internship; that the internship accommodated the intern’s academic commitments by allowing the intern to fulfill his minimum hour requirements for receiving academic credits; that the internship was limited in duration such that it “did not extend beyond the point where [the intern] was learning new skills and having important new experiences”; that no evidence existed that interns were used to displace employees or that interns even had skills comparable to employees; and that it was well understood by the intern that full-time employment was not guaranteed subsequent to the internship. The court concluded that the plaintiff was the primary beneficiary of his internship and therefore not an “employee” for purposes of the FLSA.
Importantly, employers who regularly take on (or are considering taking on) unpaid interns should fully understand this recent line of FLSA case law pertaining to unpaid internships. Using the seven-factor “primary beneficiary” test as a guideline, employers can take proactive measures (e.g., establishing up front that there is no guaranteed compensation during the internship or guaranteed employment afterward) to protect themselves from unwittingly falling within the parameters of the FLSA.
The attorneys at Chilivis Grubman represent employers of all types and sizes in connection with defending employment-related matters, including those brought under Title VII and the FLSA. For more information, or if we can be of assistance, please contact us at (404) 262-6505 or firstname.lastname@example.org.