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Appeals court draws clearer line between interns, gofers

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Employers still using unpaid interns for nontraining-related tasks may have to reconsider doing so in light of the most recent appeals court ruling on the issue.

Observers also say the ruling on unpaid interns by the 11th U.S. Circuit Court of Appeals in Atlanta in Bill Schumann et al. v. Collier Anesthesia P.A., is a victory for employers because it supports an earlier appeals court ruling that rejects the U.S. Department of Labor's standard for determining when an intern can be unpaid.

They say the ruling is also likely to be influential with other courts.

Plaintiffs in Schumann were 25 former registered nurse anesthetist students who attended a master's degree program at Wolford College L.LC. In Naples, Florida, with the goal of becoming certified registered nurse anesthetists. During their study, the students participated in a clinical curriculum required to obtain their master's degrees under Florida law, according to the ruling.

Students were seeking in the litigation to recover unpaid wages and overtime they claimed they were due under the Fair Labor Standards Act. The U.S. District Court in Fort Myers, Florida, granted the defendants summary judgment dismissing the case on the basis the students were not employees under the act.

According to the 11th Circuit's Sept. 11 ruling, in guidance based on a 1947 U.S. Supreme Court case involving railroad brakemen, Walling v. Portland Terminal Co., the Labor Department has said trainees and students are not employees within the meaning of the FLSA only if all of six criteria are met. These are:

• The training involves actual operation of the employer's facilities

• It is for the benefit of the trainees

• The trainees do not displace regular employees

• The employer that provides the training derives no immediate advantage from the trainees' activities

• The trainees are not necessarily entitled to a job at the end of the training period

• The trainees understand they are not entitled to wages for the time spent in training

However, says the unanimous ruling of the 11th Circuit's three-judge panel, “We do not defer to this test because, with all due respect to the DOL and the important work it does, we do not find it persuasive.”

Since that 1947 ruling, says the 11th Circuit, courts have “for the most part, concentrated on evaluating the 'primary beneficiary' ” of the training or school program to determine whether the participants are employees.

As the 2nd U.S. Circuit Court of Appeals in New York observed on July 2 in its ruling in Glatt v. Fox Searchlight Pictures Inc., the facts of the 1947 case “do not necessarily 'reflect the role of internships in today's economy…' ” said the 11th Circuit.

“Longer-term, intensive modern internships that are required to obtain academic degrees and professional certification and licensure in a field are just too different from the short training classes offered by the railroading Portland Terminal for the purpose of creating its own labor pool,” said the ruling.

The ruling cites the “non-exhaustive set of considerations” for evaluating the “primary beneficiary” in cases involving modern internships described by the 2nd Circuit in its ruling. These are the extent to which:

• Intern and employer understand there is no expectation of compensation

• The training is similar to what would be provided in an educational environment

• The internship accommodates the intern's academic commitments

• The internship is limited to the period in which it provides beneficial learning

• The intern's work complements, rather than displaces, paid employees

• Intern and employer understand the internships are being conducted without entitlement of a paid job at the internship's end

The case was remanded to the District Court to consider these factors.

The takeaway

“The test that the Department of Labor continues to use requires that an internship program meet all the factors in order to be considered a bona fide (internship) relationship,” said William R. Pokorny, a partner with law firm Franczek Radelet P.C. in Chicago.

“The test that the 11th Circuit adopted in this new decision makes it clear that the factors are only a guide for the court and that the presence or absence of only one those factors is not necessarily dispositive,” Mr. Pokorny said. “And the court's ruling makes it clear that although internship programs may not meet all of the factors in the Department of Labor test, in the court's view, many of those internship programs are still properly considered internships rather than employment relationships.”

The ruling reaffirms that employers are mistaken if they are “acting under the misconception that they can use the services of unpaid interns for routine job-related tasks and not pay them,” said Jonathan T. Hyman, a partner with law firm Meyers, Roman, Friedberg & Lewis in Cleveland.

The days of using unpaid interns “for just about anything other than bona fide educational training” are about ended, he said

Mr. Hyman said the ruling is potentially influential because it is the first case since the Department of Labor began looking at this issue “where you actually had coursework,” unlike the Fox case, where interns were making coffee. “This is more of what you would think of as a traditional internship,” he said.

He said he hopes the District Court will decide that because the internship was part of a course, “the individuals were the primary beneficiaries, and therefore were not employees under the FLSA.”

With this ruling, along with the 2nd Circuit ruling, “you have another nail in the coffin of the Department of Labor trying to overreach and assert that persons are employees when they are indeed not employees. In these cases, they are more appropriately students,” said Evan J. Spelfogel, a partner with Epstein Becker & Green P.C. in New York.

Mr. Spelfogel pointed to Labor Department guidance issued in July on classifying workers as employee versus independent contractors, which emphasizes the alleged misclassification of many workers as independent contractors.