Should that internship be paid or unpaid?

The U.S. Department of Labor (DOL) recently rolled back guidance with 70 years of history behind it after four federal appeals courts rejected it.

The guidance that has come under fire, most recently in December by the Ninth Circuit Court of Appeals, has to do with when interns must be paid. In Benjamin v. B&H Education, the Ninth Circuit (like the Sixth and Eleventh Circuits before it) turned to the “primary beneficiary” test established by the Second Circuit in 2016 rather than defer to a longstanding six-factor test established by the DOL.

Shortly after the Ninth Circuit’s ruling, the DOL’s Wage and Hour Division published a Field Assistance Bulletin (No. 2018-2), indicating that it would conform to the federal courts of appeals’ determinations by adopting this same test.

The (new) 7-factor test

The DOL’s newly adopted primary beneficiary test has seven factors, but unlike the DOL’s previous six-factor test, each of the factors must be weighed together to determine who is the primary beneficiary of the intern’s work: the intern or the employer. If it’s the intern, he or she may be unpaid; but if the employer is the primary beneficiary, the intern would need to be paid.

The seven factors of the “primary beneficiary” test examine the extent to which:

• The intern and the employer clearly understand that the intern will not be paid. Any promise of compensation, express or implied, suggests that the intern is an employee — while no such promise suggests that the intern is not.

• The internship provides training that would be similar to what he or she would receive in an educational environment.

• The internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.

• The internship accommodates the intern’s academic commitments by corresponding to the academic calendar.

• The internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.

• The intern’s work complements, rather than displaces, the work of paid employees, while providing significant educational benefits to the intern.

• The intern and the employer understand that the intern is not entitled to a paid job at the conclusion of the internship.

Note that not all factors must point in the same direction for an intern to be entitled to

pay, but again, employers should consider the factors against one another to determine who is the primary beneficiary of the internship overall.

The (old) six-factor test

In contrast, under the DOL’s now-rescinded six-factor test, a worker needed to meet all the following tests to qualify as an unpaid intern. If even one factor was untrue, the intern needed to be paid.

• The training is similar to training the student would get in a vocational school.

• The training is for the benefit of the intern.

• The training doesn’t replace the work of a regular employee.

• The intern is not entitled to a job at the end of the internship.

• The intern understands he or she is not entitled to wages for the training.

• The employer that provides the training not only doesn’t benefit from it, but in fact the training may actually hamper normal

business functions.

The changes in the DOL’s intern test are significant in that employers may now consider the whole of the relationship. But a major factor remains constant: Internship experiences should still be primarily educational if they are to be unpaid.

The key to remember is

this: Employers must be aware that the DOL’s sixfactor

test for determining whether interns must be paid is now obsolete, having been replaced by a seven-factor “primary beneficiary” test, which requires the side-by-side consideration of all factors.