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Legal Update

    Human Resources Group of West Michigan

    Legal Update – January 2018

    By Nathan D. Plantinga and Daniel R. Schipper

    Miller Johnson

    Department of Labor Publishes New Test
    to Determine Who Is an Intern

    Students and employers have long enjoyed the mutual benefits of unpaid internships.  Internships are valued by educational institutions as a way to provide students with real-world work experience, and savvy students also know that these internships often lead to jobs after graduation.  Likewise, employers have recognized that internships provide them an avenue for evaluating potential recruits.  Internships are often seen as extended working interviews that allow employers to identify quality candidates prior to graduation, and avoid the hassle that comes with hiring full-time employees who interview well but whose work performance is disappointing.

    Although unpaid internships benefit both students and employers, the Obama-era Department of Labor (“DOL”) was concerned that many for-profit employers were labeling positions as “internships” in order to avoid the minimum wage and overtime requirements of the Fair Labor Standards Act.   To protect these so-called “interns,” the DOL utilized a six-factor test to determine whether an intern was really an employee:  

    1. The internship had to be similar to training given in an educational environment.
    2. The internship experience had to be for the benefit of the intern, not the employer.
    3. The intern could not displace regular employees, but instead must have worked under close supervision of existing staff.
    4. The employer that provided the training should not have derived an immediate advantage from the activities of the intern, and (on occasion) its operations may actually have been impeded.
    5. The intern was not necessarily entitled to a job at the conclusion of the internship.
    6. The employer and the intern understood that the intern was not entitled to wages for the time spent in the internship.

    If any one of those six factors were not met, the DOL considered the “intern” to be an employee and required the employer to pay at least minimum wage and overtime.

    Understandably, many employers found this test a difficult one to satisfy.  Thankfully, several U.S. Courts of Appeal also found this test overly burdensome, and they applied a different test.  Taking a cue from the Courts, the DOL announced on January 5, 2018 that it was replacing the old test with a new test, called the “Primary Beneficiary” test.

    Under the Primary Beneficiary test, the DOL will now considering the following seven factors:

    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

     

    Although a number of these factors overlap with the previous test, the Primary Beneficiary test is more flexible, and unlike the previous test, no single factor is determinative.  Instead, the DOL will now determine whether an intern is actually an employee based on the unique circumstances of each case.  By relaxing the test, it also seems likely that the Trump DOL will not be making investigation of internships a top priority. 

    Even so, employers should not see this as a green light to classify positions as internships without first doing their homework.  Employers can still be penalized for misclassifying an employee as an intern.  True internships must be educational in nature; the focus should be on providing a training opportunity for students as opposed to a monetary benefit for employers.  Internships that displace regular employees, provide little training to the participants, or that are unrelated to the participant’s formal education probably do not constitute internships, regardless of the DOL’s new relaxed standards.  Thus, although the new test gives employers some breathing room, employers should carefully review the requirements of the new test to ensure that their internship programs are in compliance.

     For questions about your internship programs or other matters, please contact the authors of this article:

    Nathan D. Plantinga (616) 831-1773; plantingan@millerjohnson.com

    Daniel R. Schipper (616) 831-1748; schipperd@millerjohnson.com

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