Revised Policy on the Use of Unpaid Interns

iStock_000010997373XSmall-300x300We previously discussed whether nonprofit organizations and for-profit businesses can use unpaid interns without violating the Fair Labor Standards Act (or FLSA).  We also discussed allegations of violations of the FLSA related to unpaid interns in the fashion industry.

Earlier this year, the Department of Labor revised its policy, known as Fact Sheet #71, for determining whether businesses may use unpaid interns. The old 2010 policy used a six-factor test, with the presence of all six factors required in order businesses to use unpaid interns without violating the FLSA. The new 2018 policy considers the following seven factors to determine whether the business or the intern is the primary beneficiary of the internship.

  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.

The primary beneficiary test is intended to be flexible, taking into account the unique circumstances of each case. Unlike the old policy under which the absence of a single factor could control the result, no single factor of the primary beneficiary test determines the outcome. If a consideration of all seven factors, taken together, leads to the conclusion that the business, and not the intern, is the primary beneficiary of the internship, the business must comply with the FLSA’s requirements, including the requirements to pay minimum wage and the requirement for overtime pay. On the other hand, if the test leads to the conclusion that the intern, not the business, is the primary beneficiary, the FLSA does not apply.  Interestingly, given the first factor, and even though no single factor controls the outcome, a business may be less likely to violate the FLSA if it pays the intern nothing than if it furnishes the intern a stipend that is less than minimum wage.

The new policy does not appear to change the guidance for nonprofit organizations, which is significant for the many nonprofit organizations that rely on volunteers to fulfill their missions.  Footnotes to the old policy and to the new policy acknowledge that unpaid internships are generally permissible in both the public sector and in nonprofit charitable organizations. Despite the first factor of the primary beneficiary test which considers any expectation of compensation as indicative of an employment relationship, there is no indication that the Department of Labor is changing its previous guidance that a nonprofit organization may pay a nominal stipend without risking the intern being treated as an employee subject to the FLSA.