Student or Employee: DOL’s Relaxed Standard for Internships

Now that school has started, I’ve received more questions about training programs and unpaid internships. Most questions have come from employers, but some have come from private schools that would like to incorporate more career and technical training into their programs. The federal rules are more amenable to such programs than they have been in decades. Nevertheless, there are restrictions that we should in mind.

The starting point for internships and practical vocational programs is the Department of Labor rules under the Fair Labor Standards Act (FLSA). The statute has many wage and hour rules for employees, and additional restrictions for employees who are minors. Interns and students who are not employees, however, are exempt from all of these rules. The key, then, is to structure your program so that the participants are clearly not employees.

Note that I am only discussing federal regulations here

. Some states have more stringent rules, and those are outside the scope of this explanation. Be sure that you consult an attorney licensed in your state to stay within state guidelines.

In January 2018, the U.S. Department of Labor issued a Fact Sheet changing its standards to a more flexible test than it had used before. Following the rulings in four appellate courts (including one case that I successfully argued), DOL has adopted a “primary beneficiary test” to determine whether an intern or student is a statutory employee. If the intern/student is the primary beneficiary of the arrangement, then he or she is not an employee. If, on the other hand, the employer is the primary beneficiary, then the student/intern is actually an employee entitled to the FLSA wage/hour and safety protections.

To determine who is the primary beneficiary, courts and the DOL look to seven factors. Unlike the old rule, these factors are flexible and weighted. You can fail to meet one factor, but still have an internship/training program if the details of the remaining factors are strong enough.

1. The extent to which the student/intern understands that there is no expectation of compensation.

Any promise, either express or implied, weighs in favor of employment. In a school setting, a scholarship could be construed as indirect and implied compensation. Some private schools have scholarship programs available for good grades, discipline record, etc. If those schools extend the scholarship to a vocational program, then grant needs to follow the same rules and criteria.

2. The extent to which the arrangement provides training similar to a vocational program.

It is hard for employee-based internships to keep up with a formal curriculum. After all, a place of business is not a school and is not designed to create education programs. To the extent that employers can cooperate with schools, the arrangement will help satisfy this factor.

Independent schools can meet this factor by staying close to the policies of the public schools in their local area. The policies need not be an exact match, but should be as close as possible. Also know the standards that your state education department has for technical education and follow those as closely as your philosophy and budget allow.

3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.

This factor is similar to the one above. It comes from court cases invalidating training programs that required a practicum, but did not track the skills that the students learned. Any school that has a technical program needs to track skills and/or assign grades for all practical programs.

4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.

Schools that require work on weekends or during holidays will run afoul of this factor. On the other hand, some training opportunities are most available or beneficial during school breaks. As with all of the factors, the balancing test simply looks at whether the program or the student are gaining the most benefit from the off-schedule training.

5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.

The point of internship programs is for the students to learn skills and gain knowledge. Once they have attained a certain skill level, then it becomes easy to argue that they are simply providing work rather than learning anything. Of course, some skills require practice, and continued practice will provide them continued benefits. Employers and schools simply have to be certain that the interns are receiving “beneficial learning.” Vague claims of “experience” will not be enough to salvage a program that is gaining more from the students’ efforts than the students are.

6. 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.

This requirement is left over from the old standards, and may be the most complicated factor to assess. In true internship situations, the students are a drag on the bottom line. They require additional adults to supervise them, and businesses usually lose time while the interns learn their craft. If, however, the students evidence a skill level that allows the employer or school to benefit financially from their work, then they start looking more like employees than trainees.

7. 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.

This factor usually is the easiest to analyze. The promise of a job can be explicit, or it can be implicit. Even if there is no implicit promise, an employer can get in trouble if enough students end up working there after the internship. It is best to keep a clear dividing line between the internship/training program and new hires.

The Department of Labor has more rational rules, but there are still rules for training programs. If you participate in such a program, coordinate with a school program when possible, and be certain that the students learn measurable skills, and, above all, make sure that the students benefit more than the sponsor.