Last week, the Second Circuit joined the Sixth Circuit (which covers federal courts in Tennessee) in rejecting the Department of Labor’s six-factor test for classifying workers as interns versus employees. With this decision, and given that it is the season of interns throughout our state, let’s review whether your business is using lawfully unpaid interns or failing to pay workers that should be classified as employees minimum wage and overtime as required by the Fair Labor Standards Act.
In the Sixth Circuit, and now the Second Circuit, courts apply the “primary benefit” test to determine whether a worker is truly an “intern.” As explained recently by the Second Circuit Court in its seminal decision of Glatt v. Fox Searchlight Pictures, better known as the “Black Swan” case, “the proper question is whether the intern or the employer is the primary beneficiary of the relationship.”
As the Sixth Circuit previously explained, “[f]actors such as whether the relationship displaces paid employees and whether there is educational value derived from the relationship are relevant considerations that can guide the inquiry[.]” Unlike the Second Circuit, the Sixth Circuit gave some deference to the DOL’s traditional six-factor test, which considers, among other items, whether the internship is for the benefit of the intern and whether the employer derives any immediate advantage from the intern’s assistance.
For its part, the Second Circuit dismissed the legitimacy of the DOL test, and instead, provided a more thorough, albeit non-exhaustive, list of factors for courts to use in applying the “primary benefit” test, which include:
(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 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 receipt of academic credit.
(4) The extent to which the internship accommodations 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 also 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.
To an extent, this “primary benefit” test is beneficial to businesses because, unlike the DOL’s test, which prohibits employers from deriving any immediate advantage from an intern’s activities, under the “primary benefit” test, the focus is on an evaluation of the overall relationship to determine who receives the most, i.e., primary, advantage.
If your business currently relies on unpaid interns, now is an excellent time to reevaluate their status. Are the individuals receiving training as part of an academic program? One point for “Intern” classification. Are they fetching coffee and making copies, but getting little by way of education? One point for “Employee.” Is the individual working in exchange for course credit? Point – “Intern.”
A quick review of your business expectations will ensure that you are appropriately classifying unpaid interns, rather than unknowingly trudging into the quagmire that is FLSA litigation. If you are in need of such a review or have questions regarding proper, and legal use of unpaid interns in Tennessee, please contact me to discuss evaluation options.