Department Of Labor Opens The Door For Unpaid Internships (Part 1)

For years, Total HR Management has warned our client companies to avoid unpaid internships for students and young people. The United States Department of Labor (DOL) had made such internships very hard to justify due to its six factor test that determined coverage under the Fair Labor Standards Act (FLSA). On January 5, 2018, the DOL abandoned its six factor test for assessing whether a worker is an intern or an employee.

Citing four separate appellate court rulings that had rejected DOL’s six factor test, the DOL announced that it would use a new “primary beneficiary” test to determine the “economic reality” of whether an individual is an intern or an employee. In other words, the DOL saw the tide changing on the appellate level and decided to shift as well. Such a shift makes sense because unpaid internships historically have been a key part of many young people’s education.

Abandoning Six Factor Test for Unpaid Internships

unpaid internships

Unpaid Internships and the Modern Student

Over the years, the six factor test has been viewed as difficult to apply and extremely broad, particularly the factor that the employer gains “no immediate advantage from the activities of the intern.” Indeed, such a clause made unpaid internships virtually impossible to justify by any company. How could an intern work to any degree in a company without providing that company some kind of positive advantage? After all, doesn’t the definition of work itself in any form imply an advantage by the very virtue of that work?

Given the need for unpaid internships so young people can develop skills and learn first-hand in high-level workplace environments, the DOL has moved beyond the six factor test. Instead, the new seven factor test, as framed by the Second, Sixth, Ninth, and Eleventh Circuits, is seen to be a more flexible and holistic approach towards the very idea of an internship. Developed by several federal appellate courts, the seven factor test allows judges to examine the “economic reality” of the intern-employer relationship to determine the “primary beneficiary” of the internship. In the second part of this two-part blog, the new seven factor test will be examined in detail.

Wage And Hour Division Updates Internship Test

Given the change of Federal policy, the DOL’s Wage and Hour Division is in the process of updating its enforcement policies to replace the six factor test with the new seven factor test. After all, if a company embraces the new policies, they should not be punished for taking a progressive stand that had been rubber-stamped by the DOL. Since government bureaucracies tend to change slowly when new policies are instituted, the goal of the DOL communicating with the courts is to make sure that no company is caught in the middle. Proactive change to adapt to new policies is a process that should be rewarded and congratulated.

From this perspective on the new federal employment policy, the DOL has revised the intern-versus-employee test to make it easier for employers to use and implement. However, Total HR Management wants to highlight that such changes only apply to the Federal level of regulations. Thus, employers need to be aware of state laws, particularly the question of whether their states employ a stricter version of this test. For example, eleven separate factors relevant to determining whether an unpaid intern should be considered an employee under New York law are defined by the New York Department of Labor.

Total HR Management Can Help

As a professional employer organization, Total HR Management will advise our client companies on what actions to take on both the Federal and the state level when it comes to such regulatory compliance. To learn more about how Total HR Management can help answer questions about unpaid internships and your company, please contact us today. Take the first smart step and call (800) 975-5128 today to access the support you need to move forward.


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