Monday, July 6, 2015

2nd Circuit becomes 2nd court to toss DOL internship test

Four years ago, the 6th Circuit, in Solis v. Laurelbook Sanitarium and School, rejected the Department of Labor’s six-factored test for determining whether an “intern” is an employee entitled to wages. In its place, the court adopted a “primary benefit” test.

At the time, the case did not garner that much attention. In the years since, however, the issue of unpaid interns has rocketed to the forefront of wage-and-hour issues on which employers need to focus. Last week, in Glatt v. Fox Searchlight Pictures [pdf], the 2nd Circuit become the 2nd federal appellate court to reject the Department of Labor’s formulaic six-factored analysis for the more flexible and nuanced primary-benefit test.

In reaching its decision, the 2nd Circuit framed the import of the issue:
When properly designed, unpaid internship programs can greatly benefit interns. For this reason, internships are widely supported by educators and by employers looking to hire well‐trained recent graduates. However, employers can also exploit unpaid interns by using their free labor without providing them with an appreciable benefit in education or experience.
Ultimately, the court sided with the employer in adopting the “primary benefit” test:

[T]he proper question is whether the intern or the employer is the primary beneficiary of the relationship. The primary beneficiary test has two salient features. First, it focuses on what the intern receives in exchange for his work.… Second, it also accords courts the flexibility to examine the economic reality as it exists between the intern and the employer.…
In the context of unpaid internships we think a non‐exhaustive set of considerations should include: 
     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 approach we adopt … reflects a central feature of the modern internship—the relationship between the internship and the intern’s formal education. The purpose of a bona‐fide internship is to integrate classroom learning with practical skill development in a real‐world setting…. By focusing on the educational aspects of the internship, our approach better reflects the role of internships in today’s economy than the DOL factors, which were derived from a 68‐year old Supreme Court decision that dealt with a single training course offered to prospective railroad brakemen
The court concluded that, in certifying a class of interns, the district court erred by applying the wrong standard (the DOL’s six factors). Thus, this decision does not mean that Fox Searchlight’s interns are not employees under the FLSA; instead, it simply means that the district court must re-evaluate its earlier decision on class certification using the primary-benefit test instead of the DOL’s six factors.

Thus, while this case is a win for employers, it does not mean that employers can rest easily on the issue of unpaid interns. Rather, it confirms that employers need to practice vigilance in classifying an entry-level worker as an unpaid intern or an employee. The focus remains on whether the “intern” is receiving training akin to, or as a part of, an academic program.
  • If the “intern” is merely performing menial entry-level tasks without an attached educational component, the worker is almost certainly an employee that must be paid. 
  • If the “intern” is working in exchange for course credit as part of a bona fide academic program, the worker is almost certainly an unpaid intern. 
The thornier question is how to classify one who is not working in exchange for academic credit, but is receiving bona fide training, in addition to making copies and Starbucks runs. For this clarity, we will need to wait for merits decision on this case and others. For now, however, the safer course of action is to err on the side of “employee” in all but the clearest of internships.