Spring is in the air and summer is around the corner. You can see the signs everywhere. Flowers. Chirping birds. Increasing temperatures. And summer intern resumes. Experienced HR professionals know they will soon receive many resumes from eager students or recent graduates hoping to work as interns in order to gain valuable experience and networking opportunities. Often, intern candidates offer to work for free in exchange for the chance to gain experience in a job or industry.
Of course the idea, however enticing, of free labor should raise red flags. Many “for profit” business have run into trouble by failing to pay minimum wage and overtime pay to “unpaid interns” who the courts concluded were actually employees. The courts have used the “primary beneficiary test” to determine whether an intern or student is, in fact, an employee under the Fair Labor Standards Act (FLSA). See, e.g., Benjamin v. B & H Educ., Inc., No. 15-17147 (9th Cir. Dec. 19, 2017). Under the “primary beneficiary test,” courts examine the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship. If the intern is not the primary beneficiary, they should be paid as an employee. Courts have identified the following seven factors in the primary beneficiary test:
- 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 “primary beneficiary test” is described by courts as a flexible test, with no single factor as determinative. Courts will weigh the unique circumstances of each situation to determine whether a particular individual is an unpaid intern or a paid employee. If analysis of these circumstances shows that the individual is in fact an employee, they are entitled to both minimum wage and overtime pay under the FLSA. On the other hand, if the analysis confirms that the individual is an intern, they are not covered by the FLSA and are not entitled to either minimum wage or overtime pay under the FLSA. The Department of Labor Fact Sheet discussing the primary beneficiary test and unpaid interns can be found here.
At the end of the day, private employers seeking to benefit directly from eager students or graduates willing to work for the experience might find it difficult to satisfy the primary beneficiary test. But, an employer willing to provide work experience in order to be a good corporate citizen or to build relationships with schools or students, can likely structure an unpaid student intern program to meet those goals and comply with the law.