On January 5, 2018, the U.S. Department of Labor (DOL) adopted a new test for determining when interns are employees who must be paid in accordance with the Fair Labor Standards Act (FLSA). Although federal courts over the last several years had rejected the Obama administration’s rigid and mandatory six-prong test for whether someone can by properly classified as an unpaid intern under the FLSA, the DOL has now formerly adopted a more flexible primary beneficiary/economic reality test.
According to the DOL, courts should consider and weigh the following seven factors when determining whether an intern is an employee under the FLSA:
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.
The test is intended to be flexible. Not every factor needs to be present, “no single factor is determinative,” and the ultimate answer depends on the “unique circumstances of each case.”
Public employers should note that, as with the previous guidance, the DOL has expressly stated that unpaid internships in the public sector and non-profit charitable organizations, where the intern volunteers without the expectation of compensation, “are generally permissible.”
The DOL’s new test makes it easier for private employers to offer unpaid internships that are lawful under federal law as long as the intern, on balance, benefits more from the relationship than the employer does. The DOL’s new guidance is intentionally open-ended so the issue may be analyzed on a case-by-case basis. Courts will further develop this test and consider additional factors and circumstances as this issue is litigated.
Please note, however, that this development only affects the analysis under federal law. States, cities, and local jurisdictions can impose stricter requirements, and thus employers will want to ensure that their internships comply with all applicable requirements.
 The previous, six-factor test was adopted in April 2010, and required that six factors be met for an internship to be unpaid:
- The internship is similar to training that would be given in an educational environment.
- The internship experience is for the benefit of the intern.
- The intern doesn't displace regular employees and works under close supervision of existing staff.
- The employer doesn't gain an immediate advantage from the intern's activities—and on occasion the employer's operations may be impeded by the intern's activities.
- The intern isn't guaranteed a job at the end of the program.
- The employer and the intern each understand that the internship is unpaid.
The DOL emphasized that internships in the “for-profit” private sector “will most often be viewed as employment” unless the purported employer could prove the existence of all six of the aforementioned required criteria. See April 2010 Fact Sheets #71, available at https://career.berkeley.edu/sites/default/files/DOL-fact-sheet.pdf; see Benjamin v. B&H Education, 877 F.3d 1139, 1147 (9th Cir. 2017) (rejecting the previous six-factor test and applying the “primary beneficiary” analysis used by the Second, Sixth, and Eleventh Circuit Courts of Appeal).