Court Provides New Guidance on Internship Programs

29 Jan Court Provides New Guidance on Internship Programs

Colleges are beginning their spring semesters, summer will soon be upon us, and internships are still a common staple in education and business worlds. For businesses, there has been an extreme reluctance to engage in big internship programs because the U.S. Department of Labor had long had an internship test that was hard to get past or at least carried a fair risk. Well, the Department of Labor is not longer the only game in town when it comes to whether your internship program is acceptable.

The United States Court of Appeals for the Second Circuit recently issued a corrected opinion in Glatt v. Fox Searchlight Pictures, Inc. in which the explicitly rejected the DOL six factor test for internships. The DOL test required all six factors to be present in order for a company to have unpaid interns, but the bias of the DOL is to find an employee relationship and thus the test was not well received and difficult to accommodate in many cases. The DOL stated that their test was based upon a Supreme Court ruling in Walling v. Portland Terminal Co., 330 U.S 148 (1947). But the Second Circuit disagreed, saying the DOL was attempting to take facts specific to the Portland Terminal case and apply them to all situations. Accordingly, the DOL test’s rigidity does not take into account the fact specific nature of the intern-employer relationship in every case.

Instead, the Second Circuit believes a more nuanced approach is necessary based and developed a “primary beneficiary test” and provided a non-exhaustive seven factor analysis to determine who the primary beneficiary of the intern-employer relationship. Those seven factors, as written by the Second Circuit are:

1. 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.
2. 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.
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.
4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
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.
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.

As the court noted, this list is not an exhaustive list and that not every factor is dispositive nor would all the factors point in same direction either for or against an intern. Finally, the Second Circuit specifically noted that courts may consider any relevant evidence to aid them in their inquiry, even if the evidence does not fit within one of the seven factors.

While the Second Circuit ruling does not apply nationwide (including Maryland), the opinion is something of a win for employers who want to provide an internship program but felt it would run afoul of the DOL. The primary beneficiary test allows for flexibility for businesses to craft a program that actually benefits the interns academically or in terms of training, but also allows the employer to get some benefit out of the arrangement, so long as within the facts of a given relationship, the intern is the primary beneficiary.