With summer around the corner, it is a good time for a refresher on legal implications when hiring interns. Specifically, when must interns be paid and what other legal protections do interns have?
Wage and Hour Issues
As has been widely publicized in recent years, a number of companies who utilize unpaid interns have found themselves the object of lawsuits. It is thus important for companies to make an informed decision on the compensation issue before the hiring process begins.
According to a Fact Sheet issued by the U.S. Department of Labor (DOL) under the Fair Labor Standards Act (FLSA), interns must be paid unless each of the following six conditions are present: (1) the internship benefits the intern; (2) the employer derives no immediate advantage from the intern’s activities; (3) the employer provides the intern training similar to that given in an educational environment; (4) the intern’s work does not displace the work of paid employees; (5) the intern is not entitled to a job at the conclusion of the internship; and (6) the employer and the intern understand that the internship is unpaid.
Last summer, however, in Glatt v. Fox Searchlight Pictures, Inc. the United States Court of Appeals for the Second Circuit took a more flexible approach to the issue of internship compensation under the FLSA by utilizing the “primary beneficiary” test. In adopting this test, the Second Circuit set forth a non-exhaustive list of factors with no single factor being determinative. These factors include whether (1) the internship is tied to a formal education program; (2) the employer provides the intern training similar to that given in an educational environment; (3) the intern’s work complements, rather than displaces, work of paid employees and provides significant educational benefits; (4) the internship is limited to a period that provides the intern with beneficial learning; and (5) the employer or the intern expect that the intern will not be paid. In Schumann v. Collier Anesthesia, P.A., the Eleventh Circuit Court of Appeals also adopted the “primary beneficiary test.”
Significantly, the requirement in the DOL regulations that for the internship to be unpaid the employer must not derive any immediate benefit from the intern’s work is not a requirement under the primary beneficiary test. Wang v. Hearst Corp. Accordingly, when deciding whether to utilize unpaid interns, an employer needs to investigate whether the courts in its jurisdiction apply the primary beneficiary test, the DOL test, or, perhaps, some other test.
Employers must also be mindful of state laws, which can impose more rigorous requirements than the FLSA.
For example, in New Jersey, student interns may be unpaid, but only when, among other requirements, the student’s work is related to a formal school-to-work transition plan, both a school official and a mentor at the worksite supervise the student, any productive work by the student is incidental to his/her learning objectives, the student receives credit for time spent at the worksite, and the student does not replace an employee. N.J.A.C. 12:56:18.2.
And in New York, an internship can be unpaid only if all six of the DOL’s factors and the following five factors are met: (1) the student/trainee performs any clinical training under the direction and supervision of experienced and knowledgeable people; (2) the student/trainee does not receive employee benefits; (3) the student/trainee receives general training that qualifies him/her to work in a similar business; (4) the internship screening process is different from the employment screening process; and (5) advertisements for the internship clearly discuss education or training and not employment.
Civil Rights Issues
Employers should keep other laws that may cover interns in mind as well, such as employment discrimination laws. New York, for example, protects from discrimination of interns, whether paid or unpaid. New Jersey lawmakers have introduced (but not yet passed) similar legislation.
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As your organization prepares for intern season, attorneys in the Gibbons Employment & Labor Law Department are available to answer any questions you may have.