Labor Department rebalances test for intern payPosted On: Jan. 16, 2018 7:03 AM CST
The U.S. Department of Labor has introduced a less stringent test to determine whether employers must pay their interns at least a minimum wage and overtime, which will help businesses avoid potential liability under the Fair Labor Standards Act, experts say.
They warn, however, that businesses must still proceed cautiously in bringing in unpaid interns.
The new criteria introduced by the Department of Labor’s wage and hour division on Jan. 5 replaces the standard introduced by the Obama administration in April 2010.
With the new criteria, “there’s more clarity for employers as well as for DOL investigators, and now they’ll both have more flexibility in evaluating the intern and employer relationship,” said Susan S. Joo, an associate with law firm Hunton & Williams L.L.P. in San Francisco.
In introducing the new policy in its Jan. 5 bulletin, the wage and hour division cited four U.S. appellate court rulings it said were critical of the existing system. But experts say the Trump administration may also have been motivated by its own more pro-business stance.
Under the Obama administration guidelines, all six of the following criteria had to be met for interns to be exempted from being paid under the Fair Labor Standards Act:
- The internship is similar to training that would be provided in an educational environment
- It is for the intern’s benefit
- The intern does not replace regular employees
- The employer that provides the training does not derive any immediate advantage from the intern’s activities
- The intern is not necessarily entitled to a job at the internship’s conclusion
- The employer and intern understand the intern is not entitled to wages for the time spent in the internships
Under the new standard, which has been named the “primary beneficiary test,” the seven factors to be considered are the extent to which:
- The intern understands there is no expectation of compensation
- The internship provides training that would be similar to what would be given in an educational environment
- It is s tied to the intern’s formal education program
- It accommodates the intern’s academic commitments by corresponding to the academic calendar
- Its duration is limited to the period in which it provides the intern with “beneficial learning.”
- The work complements, rather than displaces, paid employees’ work while providing significant educational benefits
- The intern and employer understand the intern is not entitled to a paid job at the internship’s’ conclusion.
Although similar to the Obama administration standard, unlike the earlier criteria these factors will be weighted and balanced, and no one factor will be dispositive, according to the wage and hour division’s bulletin.
Experts note that the primary beneficiary test was first laid out by the 2nd U.S. Circuit Court of Appeals in New York in 2016 in Glatt et al. v. Fox Searchlight Pictures Inc.
The memo states that in that ruling, as well as in rulings by the 9th, 11th and 6th U.S. Circuit Courts of Appeal, appeals courts have held the six-part test was overly rigid in light of U.S. Supreme Court precedent on the issue.
“A lot of courts took issue with the previous test as not really being applicable in the modern world,” said Ms. Joo.
It is likely, however, that the change reflects both the court rulings and the Trump administration’s own philosophy, say observers.
“The Obama administration wouldn’t have done this, presumably,” said Eric B. Meyer, a partner with Dilworth Paxson L.L.P. in Philadelphia.
The move to a new test, was not a surprise, “but I wasn’t expecting it, either,” Mr. Meyer said. “I certainly expected the DOL to shift” to a more employer-friendly approach overall under the Trump administration, he said.
The new standard will help employers avoid litigation, according to experts. While there has already been a reduction in litigation because of the appellate court rulings, this will “continue the trend” as well as reduce adverse findings by Department of Labor investigators because they now “will be using a brand-new test,” said Ms. Joo.
“It’s good news for employers from the standpoint they don’t have to worry about conflicting standards between an agency and a court, which is what we were dealing with here for a few years,” said Helen Holden, of counsel at Spencer Fane L.L.P. in Phoenix.
“It’s easier to support or defend unpaid internships if they’re set up properly and there’s a good agreement between the intern volunteers and the organization of a business that sets up those programs,” said James A. Paul, a shareholder with Ogletree, Deakins, Smoak & Stewart P.C. in St. Louis.
If an employer hires many interns year after year, “it becomes attractive for some attorneys to try to rustle up a class action” if they are unpaid, he said.
The new standard is “much more flexible and it’s much more like a balancing test,” which “makes it a lot easier to defend,” Mr. Paul said.
However, “Employers still need to be cautious and review their programs carefully, because the test is still out there, and the question of who’s the primary beneficiary of the program — the employer or the intern — ultimately needs to be answered by the employer, and there’s a lot of gray area in there,” said Ms. Holden.
It is not a “get out of jail free” card, said Mr. Meyer. “This isn’t a license to go out and hire” people and label them interns, he said.
If an employer is unsure whether someone should be considered an intern, then “just pay them the minimum wage and overtime. That’s one way to avoid liability, for sure,” he said.
“Look at your program to make sure it meets most of the factors” of the new test, said Ms. Joo, who added that, depending on the jurisdiction, there may also be other standards with which employers must comply.
California, for instance, prohibits sexual harassment and discrimination against interns, even though they are not considered employees, Ms. Joo said.