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In January 2018, the U.S. Department of Labor (DOL) endorsed the primary beneficiary test for assessing whether interns qualify as employees under the Fair Labor Standards Act (FLSA). The test is a seven-factor test for determining interns’ status that was laid out by the Second Circuit in its 2015 ruling, Glatt v. Fox Searchlight Pictures Inc. as the way to distinguish employees from bona fide interns under the FLSA. Courts have analyzed the “economic reality” of interns’ relationship with their employer to determine which party is the primary beneficiary of the relationship. The standard has been applied in various cases where courts have ruled that interns in a variety of industries, as the primary beneficiaries of their internships, do not qualify as employees for FLSA purposes and cannot collectively pursue claims for misclassification and wage violations under that statute.
The “Primary Beneficiary” Test balances seven non-exhaustive factors, with no single factor dispositive as to whether the intern is entitled to pay:
- Whether there is a clear understanding that no expectation of compensation exists;
- Whether interns receive training similar to what they would get in an educational environment (i.e., clinical and other hands-on training provided by schools);
- Whether the internship is tied to a formal education program (e.g. academic credit);
- Whether the internship accommodates the intern’s academic commitments by corresponding to the academic calendar;
- Whether the internship duration is limited to the period in which the internship provides the intern with beneficial learning;
- Whether the intern’s work complements, instead of displaces, the work of paid employees while providing significant educational benefits to the intern;
- Whether the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
Especially in an onerous jurisdiction like California, it may be the wiser to pay any interns at least minimum wage and treat them like any other employee, including without limitation, following all the state and local laws regarding breaks, time tracking, overtime, payroll taxes, worker’s compensation, and protection from harassment and other forms of discrimination. Beginning January 1, 2020, employers with five or more employees must provide California’s expanded sexual harassment training to seasonal or temporary employees, or any employee hired to work for less than six months.
Scali Rasmussen’s Employment Group lawyers can assist your business in implementing and evaluating an internship program. Please contact our offices for more information.