Law360 Expert Analysis
In a recent Law360 Expert Analysis, Elizabeth Vulaj shared insights on the U.S. Department of Labor seven-part test to distinguish whether internships should be classified as "paid" or "unpaid." Below is an excerpt from the April 18 piece.
To pay or not to pay? This summer, many employers may find themselves asking that question as they begin to usher their new summer interns into their offices. On Jan. 5, 2018, the U.S. Department of Labor issued a new seven-part test to distinguish whether internships should be classified as “paid” or “unpaid.”
Since there have been no major lawsuits from unpaid interns against their employers since this new test has been implemented so far, it may not be extremely clear to employers how courts will apply this new test and how they should move forward with their own internship programs in the future.
This primary beneficiary test includes a new list of factors to determine whether the student or the employer is the primary beneficiary of the relationship. These factors include:
1. The extent to which the intern and the employer clearly understand there is no expectation of compensation;
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 an educational institution;
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; and
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.
This test differs greatly from the older six-factor test that the U.S. Department of Labor issued in 2010, as a response to the slew of lawsuits for unpaid wages from interns against large companies in the media, publishing and fashion industries, which sparked legislation and discussion around the topic of unpaid internships in a way the U.S. legal landscape had rarely seen before. The 2010 test had different factors to determine if the internship should be paid or not, including: whether the internship qualified as similar training that would be given in an educational environment, whether the internship experience is for the benefit of the intern and whether the intern displaces regular employees.
Under the older standard, many lawsuits from unpaid interns against their employers were ruled in the students’ favor, starting with Glatt et al v. Fox Searchlight Pictures, when two interns sued Fox Searchlight Pictures, alleging they were not paid for the work they did on the 2011 Academy Award-nominated film Black Swan. In 2013, a court sided with the students, using the older 2010 Department of Labor test to find that the students should have received monetary compensation for their roles.
Part of the court’s reasoning here was that the two interns were completing tasks such as answering phones and making travel arrangements, duties usually belonging to a paid employee. This sparked a wave of similar cases, including a group of unpaid interns that sued Hearst Corporation, alleging they were not paid for work they did at the company’s various publications, including Cosmopolitan, Harper’s Bazaar and Marie Claire. For a short while, it seemed as if students were finally going to be getting their day in court.
Yet, the legal system seemed to do a complete reversal over the next several years. In 2015, the Glatt decision was reversed by the U.S. Court of Appeals for the Second Circuit in New York, which found the government’s standards too rigid. Both Glatt and Benjamin v. B&H Education, a 2017 case in the U.S. Court of Appeals for the Ninth Circuit, determined the prior internship test was too strict, and instead, the court adopted the newly implemented test, with factors that focused more on whether the entire experience was educational for the intern.
In December 2017 in Wang v. The Hearst Corporation, the Second Circuit, applying the primary beneficiary test and using Glatt as an example, affirmed summary judgment in favor of Hearst, finding that the interns did not qualify as employees and were not deprived of their wages. Some fear that these rulings and the new, less stringent primary beneficiary test will make it increasingly easier for internships to qualify as unpaid, as the guidelines for the factors state that it is a “flexible test, and no single factor is determinative,” leaving some experts to say that “… these terms help employers more easily justify unpaid internships.”
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