USDOL Adopts "Primary Beneficiary" Test for Unpaid Interns and Students

The United States Department of Labor (USDOL) recently adopted the "primary beneficiary" test used by several federal appellate courts to determine whether unpaid interns and students are employees for purposes of the Fair Labor Standards Act (FLSA). The primary beneficiary test, which replaces the Obama-era USDOL's more stringent six-factor test, allows courts to examine the "economic reality" of the intern-employer relationship to determine which party is the "primary beneficiary" of the relationship. In this regard, courts have identified the following seven factors as part of the test:

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.

Unlike the previous USDOL test for interns and students, which required that all six factors be present, the primary beneficiary test allows greater flexibility because no single factor is determinative. Accordingly, whether an intern or student is an employee under the FLSA subject to minimum wage and overtime requirements necessarily depends on the unique circumstances of each case.

It should be noted that the FLSA exempts certain people who volunteer to perform services for a state or local government agency or who volunteer for humanitarian purposes for non-profit food banks. The USDOL also recognizes an exception for individuals who volunteer their time, freely and without anticipation of compensation, for religious, charitable, civic, or humanitarian purposes to non-profit organizations. Unpaid internships for public sector and non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible.

Lastly, for New York businesses, please be aware that the New York State Minimum Wage Act and Wage Orders contain pay and overtime rules in addition to those required by federal law, including the FLSA. In this regard, the New York State Department of Labor (NYSDOL) has published fact sheets, available on the NYSDOL's website, to help for-profit and not-for-profit businesses determine whether their interns are subject to the state minimum wage and overtime rules.