Employment Law Daily Read this if you hire student interns and you want to avoid FLSA claims
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Friday, January 19, 2018

Read this if you hire student interns and you want to avoid FLSA claims

The Department of Labor, apparently recognizing the trend among federal appellate courts in addressing whether interns should be considered “employees” for purposes of the FLSA’s wage and hour requirements, has now updated its Fact Sheet #71 and adopted the “primary beneficiary” test first set forth by the Second Circuit in Glatt v. Fox Searchlight Pictures, Inc. and subsequently adopted by the Ninth and Eleventh Circuits.

The “primary beneficiary” test. In determining whether an intern/trainee is an “employee,” the “non-exhaustive” factors considered under the Glatt test include:

  1. whether it is clearly understood there is no expectation of pay;
  2. whether the internship provides formal training similar to that provided in an educational environment;
  3. whether it is tied to a formal educational program or earns academic credit;
  4. whether the internship corresponds to the academic calendar, accommodates academic commitments;
  5. whether it is limited in duration to the period it provides beneficial learning;
  6. whether the intern’s work complements, rather than displaces, work by paid employees and simultaneously provides a significant educational benefit to the intern; and
  7. whether it is clearly understood that the intern is not entitled to a paid position after the internship. Courts are to take a “totality of the circumstances” approach.

No factor is dispositive. The Second Circuit recently explained in Wang v. The Hearst Corp. that the Glatt factors intentionally omitted the DOL’s original requirement that an employer “derive no immediate advantage from the activities of the intern.” For an employer, “[i]t is no longer a problem that an intern was useful or productive,” explained the court.

The Eleventh Circuit in Schumann v. Collier Anesthesia agreed with the Second Circuit that the focus should be “on the benefits to the student while still considering whether the manner in which the employer implements the internship program takes an unfair advantage of or is otherwise abusive towards the student.” The Ninth Circuit in Benjamin v. B & H Education, Inc. also followed the primary beneficiary analysis, finding that it best captures the Supreme Court’s economic realities test in the student/employee context. Under this approach, the court found that students at beauty schools in California and Nevada were not statutory employees and affirmed summary judgment against their FLSA claims.

The Seventh Circuit in Hollins v. Regency Corp. cited both Glatt and Schumann but did not expressly adopt the seven-factor test, focusing instead on the economic realities as considered in the Supreme Court’s 1947 decision in Walling v. Portland Terminal Co. It concluded that cosmetology students were not employees during their time working on the “performance floor” because state law required that the students perform “hands-on” work and the accrediting commission required the use of “practical learning methods.” Thus, the incidental tasks they performed, such as acting as receptionists, stocking products, and cleaning the floor, did not make them “employees.”

A few pointers. Lisa Milam-Perez, a senior employment law analyst at Wolters Kluwer, suggests that employers consider the following pointers if interns are a regular fixture in their organization:

  • Create a formal internship program, working in close conjunction with a local college or university, so that interns earn college credit for their efforts pursuant to an academic program. Set a clear start and end date, perhaps tied to a school semester or break.
  • Ensure the university plays a meaningful oversight role; such scrutiny helps to show that the intern’s duties are educational, not merely operational, and that the internship is primarily academic in nature.
  • Structure tasks around the intern’s academic goals, not the employer’s operations. “Grunt work” should only rarely be assigned.
  • Provide the intern with opportunities to develop skills that are readily transferable to other employers within the industry, rather than know-how on procedures that are unique to your organization.
  • Establish the duration before the internship begins, and don’t schedule it around the organization’s busy season or an employee downsizing.
  • Don’t schedule your interns based on your busy season or your productivity needs, but in accordance with their academic goals. (As a practical matter, if you’re reliant on interns to get the work done, then they are probably employees.)
  • Heed federal tests for “trainee” status under the FLSA, but note that state wage and hour laws apply too.

In the end, concludes Milam-Perez, “it might just pay to pay.”

Special briefing. For a more in-depth analysis of the Glatt test and other contexts in courts may find an employment relationship for purposes of liability under federal labor and employment laws (e.g., franchisors, successor owners, and companies that use gig workers), see Employment Law Daily’s special briefing, L&E Evolution Part I: Redefining Employment Relationships, written by Senior Employment Law Analyst Lorene D. Park.

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