When Are Interns Entitled to Compensation?
The Fair Labor Standards Act (“FLSA”) requires employers to pay all employees a specified minimum wage, and overtime of time and one‐half for hours worked in excess of forty hours per week. Although the Supreme Court has failed to address the difference between unpaid interns and paid employees under the FLSA, in 2010, the United States Department of Labor (“DOL”) published guidance for unpaid interns working in the for‐profit private sector. The DOL Intern Fact Sheet provides that an employment relationship does not exist if all of the following factors apply:
- The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
Therefore, an employer covered under the FLSA could treat an individual as an intern provided that all six criteria were met.
In a recent decision, the Second Circuit Court of Appeals (NY State) declined to apply the DOL’s factors in determining whether an employment relationship existed between Fox Searchlight Pictures and numerous unpaid interns who worked on the film “Black Swan” in 2009 and 2010. The Second Circuit instead determined that the proper question is whether the intern or the employer is the primary beneficiary of the relationship. In order to reach this conclusion, the Second Circuit concluded that the court must apply the following non-exhaustive considerations:
- 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.
- 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.
The Second Circuit’s rationale behind its non-exhaustive 7-factor test was to emphasize the relationship between the internship and the intern’s formal education. Employers located outside of the Second Circuit should continue to apply the DOL’s test when determining whether their interns are entitled to compensation. However, employers should be mindful of the Second Circuit’s emphasis on the educational component of the internship, as other courts may begin to reject the DOL test in favor of this new set of considerations.