DOL’s Move to “Primary Beneficiary” Test Indicates an Increased Tolerance for Unpaid Interns

The Department of Labor announced Friday that it will use the “primary beneficiary” test favored by courts to determine whether interns are employees under the Fair Labor Standards Act, and thus entitled to its minimum wage and overtime protections. Under the primary beneficiary test, an intern is only considered an employee of a for-profit entity if the economic reality of the internship reveals that the entity, rather than the intern, is the primary beneficiary of the internship. This test considers the following factors: 

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
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 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.
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.
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.

Notably, no single factor is determinative, making the primary beneficiary test more flexible than the DOL’s previous six-factor test. Under the previous test, issued by the DOL in 2010, an intern was considered an employee for purposes of the FLSA unless all six factors weighed in the employer’s favor. The six factors included whether the intern displaced regular employees and whether the employer derived any immediate advantage from the intern’s work. The DOL’s move better aligns with recent federal court decisions and suggests an increased tolerance for unpaid interns at for-profit entities going forward.

If your organization will be directly affected by this announcement or if you have questions regarding the DOL’s primary beneficiary test, please contact your Warner Norcross + Judd labor and employment attorney.