The Department of Labor ("DOL") announced its adoption of a new test on January 5, 2018 for determining whether interns are employees under the Fair Labor Standards Act ("FLSA"). In recent years, many for-profit employers have been hesitant to hire interns given the lack of clarity surrounding the applicable standard and the potential for enforcement actions or litigation due to risks of misclassifying employees as interns. The DOL's adoption Friday of the so-called "primary beneficiary" test brings greater clarity and flexibility to the classification of interns and may open the door for the revitalization of diminished internship programs at for-profit organizations.
The FLSA requires for-profit employers to pay employees for their work. "Employee" is a defined term under the FLSA, and interns and students may qualify as employees to whom compensation must be paid under the FLSA.
Previously, in determining whether an intern was properly classified as unpaid, the DOL focused on whether the employer received an "immediate advantage" from the intern's work. When the DOL determined that the employer received an "immediate advantage," it concluded that the intern was an employee owed compensation under the FLSA. Courts and employers alike criticized the DOL's test as too rigid and impractical for the modern internship. Still, risks ran high for employer mistakes, exposing employers to enforcement actions and lawsuits to recover back pay and an additional equal amount as liquidated damages.
With its announcement Friday, the DOL clarified that it would update its enforcement policies to conform with the more flexible primary beneficiary test already adopted by four federal appellate courts. The newly adopted primary beneficiary test eschews the immediate advantage factor in favor of a more nuanced test focusing on the "economic reality" of the intern-employer relationship.
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