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By: Zinnia Khan
In a recent announcement, the U.S. Department of Labor loosened the Obama-era federal test for determining if an intern should be classified as an employee. That is good news for employers, although there still remain other potential risks for employers including inadvertent misclassification of interns and stricter state laws.
The new standard, known as the “primary beneficiary” test, examines whether unpaid interns or their employers get the primary benefit of the internship. If the intern gets the primary benefit, he or she may be unpaid. The test has seven equivalent factors, which include the degree to which both parties recognize the work is unpaid and whether the internship is for academic credit. The DOL has added whether an intern or student is an employee under the Fair Labor Standards Act necessarily depends on the unique circumstances of each case. For a program to satisfy the new test, there must be an emphasis on the educational benefit to the intern, which often means the intern receives academic credit for the internship.
At the same time, unpaid internships for public sector and nonprofit charitable organizations, where the intern volunteers are working without expecting to be paid, are generally acceptable.
Previously, employers were required to look to a six-factor test for determining intern status. Generally speaking, if any single factor went against the employer, it had to pay the intern. One particularly challenging requirement of the old test was that employers could not properly classify a worker as an unpaid intern if the employer derived “immediate advantage” from the individual’s work.
Although the new test is less stringent than its predecessor, there are still risks of misclassification. The FLSA authorizes misclassified interns to bring suit for back pay, liquidated damages and attorney fees. Furthermore, some states may continue to have more rigorous tests for unpaid interns under their own wage and hour laws. Employers must adhere to the strictest requirements in each state where they have employees.
As a result of these additional considerations, employers need to be comfortable when using interns that they can satisfy their burden in establishing the individual truly is an intern, even under the more relaxed test. Useful steps that could mitigate an adverse determination include hiring interns who receive academic credit, memorializing the unpaid nature of the internship in a written offer letter and creating a formal internship program that coordinates with the intern’s academic schedule.
If you have any questions or would like more information, please contact Zinnia Khan in the National Labor & Employment Practice Section at [email protected].