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BLOG / 05.09.19 /Jack Malley

Summer’s Almost Here! Welcome to the Unpaid Intern Conundrum

Summer is approaching and employers are now considering whether to bring on unpaid interns for the season. This article discusses the parameters that employers should follow to properly classify workers as unpaid interns instead of employees entitled to minimum-wage and overtime pay under the Fair Labor Standards Act (“FLSA”) and/or New York Labor Law (“NYLL”). As in other employment law scenarios, a close look at the applicable law is far from satisfying due to conflicts in the federal and state law.

A short review of the development of the pertinent law is needed for context. In 2010 the United States Department of Labor (“U.S. DOL”) issued a test under which six conditions must be met for a worker to be classified as an unpaid intern (“U.S. DOL Six-Part Test”). This rigid test placed a heavy burden on employers to justify an intern’s unpaid status. Consequently, many lawsuits by interns followed seeking the payment of minimum wage and overtime pay. However, several subsequent federal court decisions rejected the U.S. DOL Six-Part Test, the most prominent of which was the Second Circuit’s decision in Glatt v. Fox Searchlight Pictures, 791 F.3d 376 (2d Cir. 2015), amended and superseded by 811 F.3d 528 (2d Cir. 2016).

Together with its rejection of the U.S. DOL Six-Part Test, in Glatt, the Second Circuit announced a seven-part test to be applied, known as the “Primary Beneficiary Test”, comprised of a non-exhaustive set of considerations to be balanced under the circumstances, none of which is dispositive. Those considerations were:

  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.

On January 5, 2018, the U.S. DOL, by that point under the control of the current administration, adopted the more employer friendly Primary Beneficiary Test. With the issuance of the Glatt decision, as adopted by the U.S. DOL, one would think that New York employers would have clarity on the parameters it must follow to comfortably retain unpaid summer interns. But no, there is state law to consider. Although the Second Circuit held that the Primary Beneficiary Test applied to the plaintiffs’ claims under both the FLSA and NYLL, the Court’s holding as to NYLL is not binding on New York courts. While at least one New York Court tacitly recognized the viability of the Second Circuit’s Primary Beneficiary Test,[i] no New York Court has affirmatively signed on to it.

This leaves New York employers only with the guidance issued by the New York Department of Labor (“NY DOL”) in July 2016, after the Glatt decision, that sets forth an eleven-part test comprised of the U.S. DOL Six-Part Test plus five more parts (the “NY DOL Eleven-Part Test”), all of which are mandatory conditions to classify a worker as an unpaid intern. The conditions are:

  1. The training, even though it includes actual operation of the employer’s facilities, is similar to training provided in an educational program.
  2. The training is for the benefit of the intern.
  3. The intern does not displace regular employees and works under close supervision.
  4. The activities of trainees or students do not provide an immediate advantage to the employer. On occasion, operations may actually be impeded.
  5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period and are free to take jobs elsewhere in the same field.
  6. The trainees or students are notified, in writing, that they will not receive any wages and are not considered employees for minimum wage purposes.
  7. Any clinical training is performed under the supervision and direction of people who are knowledgeable and experienced in the activity.
  8. The trainees or students do not receive employee benefits.
  9. The training is general, and qualifies trainees or students to work in any similar business. It is not designed specifically for a job with the employer that offers the program.
  10. The screening process for the internship program is not the same as for employment, and does not appear to be for that purpose. The screening only uses criteria relevant for admission to an independent educational program.
  11. Advertisements, postings, or solicitations for the program clearly discuss education or training, rather than employment, although employers may indicate that qualified graduates may be considered for employment.

Given these conflicts in the law, New York employers are left in a bit of a haze as to how to structure an unpaid intern program. Of course, the safest road would be to pay all retained interns as required by the FLSA and/or NYLL, but many employers cannot afford that. The next safest course would be to follow the NY DOL Eleven-Part Test. However, neither of these options may be appetizing to an employer. In such circumstances, the only other option is to consult counsel on a third, compromise program that is primarily for the benefit of the intern and predominately educational in character.

Stay tuned for our next eblast concerning the laws applicable to volunteers, students and trainees retained by not-for-profit businesses.
[i] Leuvan-Monroe v. Karla Otto Inc., No. 155697/2015, 2017 WL 65661 (Supreme Court, New York County Jan. 6, 2017)