Department of Labor Changes the Requirements for Internships

The realities of today’s job market have left many of us spending some time in the workforce as unpaid  interns. This can be an incredible opportunity to learn the intricacies of a profession, gain resume experience that is essentially necessary to be hired in an entry-level position in much of today’s economy, and develop a network within your industry.

Often, these internships can be the prequel to a more permanent position at the same place of work. Yet, we all know somebody with an internship horror story–you are basically working for free and sometimes you don’t end up feeling like you’ve got out what you put in.

The Reality of Internships in the Workplace

The truth is not all internships are legitimate, sometimes an employer is simply taking advantage. Sometimes an employer truly believes they’ve properly classified somebody as an intern and is blindsided by a lawsuit over misclassification, often resulting in costly fines, required backpay and liquidated damages. Employers are obviously required to pay employees, internships are a classification creating an exception to this issue. In other words, interns don’t count as employees under the law. This means misclassification is a very serious issue.

Determining when you are properly classified or classifying an employee as an unpaid intern has always been a bit of a challenge. There are rules that change from state to state as to the requirements to treating somebody as an unpaid intern versus as an employee. However, since 2010, the federal approach through the Department of Labor’s (DoL) approach to the topic under the Federal Labor Standards Act (FLSA) has been the same–a rigorous six-factor test.

In order to be an intern under this test all six factors need to be met–the internship must be similar to the training in an educational environment, the experience must be designed for the benefit of the intern, the intern doesn’t displace employees and works under close supervision, the employer shouldn’t draw immediate advantage from the intern (they may actually be inconvenienced), the internship doesn’t automatically translate to a job, and both parties need to go into the relationship knowing the intern isn’t getting paid.

All these elements needed to be fulfilled under this test, however the primary focus was on the “immediate benefit” section. This is a bit vague, one of the main problems with the test, but it means that if the employer is gaining a business benefit from the intern they should be treated as an employee.

This is very strict standard, but it was put in place to make sure the intern wasn’t getting taken advantage of. Without the right provisions in place, it’s easy to imagine a situation where an unpaid intern is basically an unpaid janitor or secretary.

Are the Rules for Internships Too Strict or Too Relaxed?

Despite the importance of these rules, the rigidity of the federal standard has seen quite a bit of criticism since they were originally adopted. They’ve been rejected as a standard by several courts, most recently the 9th Circuit, and challenged by quite a few companies. The rules have been blamed being so unclear or so unyielding as to scare employers from hiring interns or running internship programs in the first place.

Just a few weeks ago, the DoL took steps to change these rules to be more in line with the looser standards often adopted by the courts. In fact, the test they have adopted is quite close to the standards adopted by the 9th Circuit–known in legal communities as the “primary beneficiary” test.

This means it’s easier to hire an intern, something useful to businesses and those seeking internships. However, it will also leave these interns more vulnerable to abuse. Let’s look at the new rules and how they will affect your business or your potential internships.

What are the New Internship Standards?

The new standards are much more flexible on internship classifications than the previous six-factor “immediate benefit” test. The DoL has described the test as focusing on the economic realities of the job market and how internships work. But like many things in law, this is no simple test. It is a seven-factor doozy.

Despite being seven factors as opposed to six, the test is still less restrictive because no one factor can be determinative one way or another. Instead of the previous tests requirements that each box be checked, the new test looks to the whole situation and uses each factor to inform an overall determination based on the considerations of each element. The elements of the test, and the way to ensure you stay in line with them, are as follows:

1. The extent to which the intern and the employer have an agreement that the intern isn’t getting paid.  Any promise of payment or any other sort of compensation, express or implied, suggests the intern is an employee–and vice versa. This means it’s incredibly important that a signed agreement is in place that makes it clear that there are no monetary incentives associated with the internship. It’s also worth noting that money isn’t the only thing that can act as compensation, an employer needs to be clear that there aren’t any rewards associated with the internship other than experience and training.
2. The extent to which the internship provides training that would be given 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. For example, if you have an internship through your school with a follow-up journal or something of the sort that weighs in favor of you being an intern.
4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar. This one is straight forward, don’t make your intern skip school to attend his internship unless it’s necessary.
5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning. This one is also simple, if you’ve had an intern for a particularly long time they aren’t learning much new unless you constantly change their duties. An intern who comes in each day and handles the same duties for a long enough period looks suspiciously like an unpaid employee.
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. If the intern is doing the same thing as your employees, the more the intern is replacing the role of a paid hire as opposed to learning the trade the worse it looks for an employer.
7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job after the internship. This goes hand in hand with the first factor, as an employer make sure there’s a clear written agreement in place that the internship is not a guarantee of later employment.

The final determination from all these factors, determining whether any given intern was properly classified, rests on who is the primary beneficiary of the arrangement based on these factors. As the name of the test suggests, if the intern is receiving at least something more than 50% of the benefit of the relationship then they are properly classified. This allows a lot more benefit for an employer out of an internship relationship, or a lot less benefit for the intern depending on your point of view.

What Do These New Rules Mean for Employers and Interns?

These rules are close to the previous six factor test, at a minimum they look at many similar issues. However, it looks more to the totality of the circumstances as each issue is at most a factor weighing for or against proper classification as an intern.

This means the situation may be slightly more confusing, or at least less cut and dried, when it comes to classification. Regardless, the test will make it less likely for employers to get in trouble for misclassifying interns.

As discussed above, a clear written agreement should be signed by both parties before an employer brings on an intern. Such an agreement should include as much of the language from these seven factors as possible. Making it clear there is no compensation for the internship, monetary of otherwise, is crucial.

Other documentation associated with program, such as advertising internship positions, should also adopt language like the seven-factor test. The stated goal of the change is to be more flexible in allowing internships. However, it is still important to be as clear as possible in every related to your internship program to avoid costly court battles.

If you’re interested in getting an internship, it’s important to make sure that it’s on the up and up. While the new rules have the potential to create more available internships, they also open the doors to easier abuse of the system. Make sure your internship is on the up and up, preferably through an established a reputable organization.

It’s also worth noting that there are some exemptions to the usual internship rules. The FLSA does not apply the rules to those who volunteer for humanitarian services such as non-profit banks, volunteers for religious, charitable, civic, or other similar non-profit organization.

Similarly, volunteers for state or local governments are exempted. A volunteer is not an intern. What’s more, there is an established rule that for-profit companies cannot make use of volunteer labor.

Regardless of your position, would-be intern or employer, the new rules bring the federal position in line with the bulk of case law on the issue. This will make the issue more consistent across the nation. This will make it easier to offer internship programs. This by itself is a benefit for everybody. From here, it’s just important to make sure that the many interns across the company are properly protected.

Jonathan Lurie is a Founding Partner of The Law Offices of Lurie and Ferri (Contact Info). He primarily handles business law, employment law, and intellectual property issues, but works with all types of civil matters. He is a Vice-Chair of the Sports and Entertainment Interest Group of the California Intellectual Property Section and has won awards for his knowledge of intellectual property, start-up business issues, and California civil procedure.