Sometimes, a client will call me and ask whether there are any legal issues if they utilize unpaid “interns.” Usually, my answer is: “yes.” Some employers see job-hungry college students as a source of “free” labor. But, free labor is exactly the problem that the Fair Labor Standards Act (“FLSA”) was designed to prevent.
Nevertheless, the United State Department of Labor (“DOL”) recognizes that there are circumstances in which a student truly obtains an academic benefit from working-for-free in industry. So, the DOL has developed a test for distinguishing “employees” (who should be paid) from “interns” (who may work for free). Under the Obama Administration, the DOL adopted a restrictive six-factor test in 2010. Under that test, an unpaid intern would be considered an “employee” under the FLSA unless each of the six factors was met. As a matter of practicality, if the company received any economic benefit from the “intern’s” services, the DOL considered the intern to actually be an “employee” entitled to minimum wage and overtime.
The DOL’s six-factor test was generally criticized by federal courts around the country, including the Eleventh Circuit Court of Appeals, which reviews cases from Alabama. See Schumann v. Collier Anesthesia, P.A., 803 F.3d 1199, 1209 (11th Cir. 2015). Rather than following the DOL’s strict, six-factor test, the Eleventh Circuit follows a more-flexible seven-factor test, borrowed from the Second Circuit Court of Appeals. That test considers the following elements, none of which is conclusive:
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 DOL formally scrapped its six-factor test in favor of the more-flexible seven-factor test. The DOL’s fact sheet with the new test can be found here: DOL Intern Fact Sheet. In short, if analysis of the seven factors “reveals that an intern or student is actually an employee, then he or she is entitled to both minimum wage and overtime pay under the FLSA. On the other hand, if the analysis confirms that the intern or student is not an employee, then he or she is not entitled to either minimum wage or overtime pay under the FLSA.”