Second Circuit Disposes of DOL Guidelines on Unpaid Interns

July 20, 2015

The United States Court of Appeals for the Second Circuit made a momentous decision earlier this month, disregarding the traditional standards used in determining whether a worker is legally classified as an unpaid intern. The six-factor test, originally created by the United States Department of Labor (DOL), has been disposed of by the court and replaced by a test that uses the “totality of the circumstances” of the employment relationship to determine which party receives a greater benefit.

Employers commonly accept applications for unpaid interns, often from college students or recent college graduates. Hoping to apply classroom training to real work-related experiences, many unpaid interns have been disappointed to find themselves making coffee, scanning copies, or performing other insignificant tasks for these employers. Employers who take advantage of these interns without providing any valuable experiences or education benefits could be violating the Fair Labor Standards Act (FLSA) by failing to pay the minimum wage to their employees.

The six-factor test issued by the DOL was designed to help employers understand whether a worker is an “employee” under the FLSA and thus entitled to wages. In order to be considered an unpaid internship, the relationship with the employer must satisfy each of the six criteria. The criteria include offering a training experience that is similar to training in the educational environment, providing an experience for the benefit of the intern, and giving no immediate advantage to the employer.

The Second Circuit has rejected the DOL’s test. The criteria, according to the court, were loosely based on the considerations made by the United States Supreme Court in 1947 in determining whether a group of railroad workers was entitled to compensation. Arguing that agencies have no special competence or role in interpreting judicial decisions, the court gave no deference to the DOL’s interpretation of the 1947 case and discarded the test that the agency created.

The Second Circuit stated that in defining an “employee” for FLSA purposes, the ultimate question to be answered is whether the employer or the worker receives a greater benefit from their work relationship. The “primary beneficiary” test created by the Second Circuit has two considerations: the benefits received by an intern as a result of the internship, and the factors that reveal the “economic reality” of the relationship. The economic reality depends on the “totality of the circumstances,” taking into consideration all relevant facts on a case-by-case basis.

The court offered a non-exhaustive list of factors to consider. The similarity between the training on the job and the training offered by the educational institution, the tie between the internship and the intern’s formal education (including course credit), the duration of the relationship, and the significant educational benefits provided to the intern, should all be considered when determining whether an employment relationship exists. Unlike the DOL criteria, the primary beneficiary test takes a holistic approach; the presence or deficiency of any single factor does not create an employment relationship without more.

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