DOL Reverses Course on Unpaid Interns and Withdrawn Opinion Letters
As often happens when a new administration of the opposite political party is installed, the Department of Labor (DOL) under President Trump made several announcements last month that evidence a shift in the agency’s enforcement policy.
First, the DOL rescinded its 2010 guidance on when unpaid internships are acceptable under the FLSA and adopted instead the more flexible primary benefit test. Under the old standard implemented by the DOL under the Obama administration, employers had to pay interns minimum wage and overtime unless all of the following factors were met: (1) the internship was similar to training that would be given in an educational environment; (2) the internship experience was for the benefit of the intern; (3) the intern did not displace regular employees and worked under close supervision of existing staff, (4) the employer did not gain an immediate advantage from the intern’s activities (and the employer’s operations may actually have been impeded or hindered by the intern’s activities); (5) the intern was not guaranteed a job at the end of the program; and (6) the employer and the intern each understood that the internship was unpaid. Many courts and employers had criticized this test as impractical and too limiting.
In adopting the primary benefit test, which had already been adopted by four appellate courts, the DOL focuses on the “economic reality” of the intern-employer relationship. Somewhat like the Obama administration’s test, the primary benefit test looks at several factors; but in contrast, no one factor is determinative. In fact, the DOL’s news release adopting the primary benefit test noted its desire to “eliminate unnecessary confusion among the regulated community, and provide … increased flexibility to holistically analyze internships on a case-by-case basis.” The DOL has emphasized that the question of whether an intern is an employee under the FLSA “necessarily depends on the unique circumstances of each case.”
The seven factors to be weighed under the primary benefit test are:
- 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 or 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.
- 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.
On the same day that the DOL made this announcement, it also reissued a number of opinion letters that had been withdrawn under the Obama Administration. Under President Obama, the DOL would stop the practice of issuing opinion letters, which answered questions submitted to the agency by individual employers looking for guidance on specific issues. Instead, the DOL in 2009 withdrew a group of opinion letters issued in recent years under the Bush Administration and in 2010 announced that it would instead publish “Administrator’s Interpretations” on topics of its own choosing.
The current Administration not only reissued several withdrawn opinion letters but also announced that it will resume the practice of releasing opinion letters. The agency did not explicitly explain its resurrection of the withdrawn opinion letters, saying only that, after further analyzing them, it was reissuing the letters as “an official statement of the [Wage and Hour Division’s] policy.”
Both of these moves by the DOL signal a relaxation of its enforcement standards against employers. With respect to unpaid interns, specifically, this shift represents a clear effort by the current administration to ease up on previous restrictions. Nonetheless, employers should carefully evaluate any intern programs to ensure compliance with the primary benefit test.