Eager college students are reaching out into the working world to gain experience to supplement their education and resume. Many businesses see this as an opportunity to get a free employee for a few months to help with the workload. This view, however, can end up costing your business more than you might think.
For a little more than half a century, the Department of Labor utilized a six factor test. If all six factors were present, the intern was not considered an employee and, thus, did not need to be paid. But if one factor was missing, the intern would be entitled to payment.
This time last year, the Second Circuit Court of Appeals (the federal court of appeals that presides over New York), threw the Department of Labor’s six factor test out the window in Glatt v. Fox Searchlight Pictures, Inc. This landmark precedent set forth a multi-factor test aimed primarily at determining whether an intern or employer is primary beneficiary of the relationship. In other words, the new test is supposed to consider the “economic reality” of the situation, i.e., whether or not the internship was a net educational benefit.
This test focuses on balancing the following non-exclusive factors:
- 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;
- 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;
- The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit;
- The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar;
- The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning;
- 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; and
- 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.
Now, the propriety of each internship requires a holistic inquiry on a case-by-case basis. Because the factors are still new, the area of law remains fluid and employers should proceed with caution. Before taking on any interns this summer, you should review your program for compliance with the above factors, or you could find yourself liable for back wages and overtime for those once helpful and free interns.
If you have questions about particular internship programs or positions, reach out to the Wagoner Firm to discuss your concerns and legal questions.