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Intern or Employee?

08.29.2013

Class or collective actions under the Fair Labor Standards Act ("FLSA") have become commonplace over the last several years. The newest development relates to interns, who historically have been unpaid and with their "compensation" being the experience, connections and school credit earned, but who are filing lawsuits claiming that they are entitled to minimum wage and overtime compensation. The underlying issue is whether the intern is deemed an "employee" under the FLSA.

If the intern is an employee, then he or she must be paid minimum wage and overtime. The U.S. Department of Labor ("DOL"), the federal agency that enforces the FLSA, has consistently applied a six-part test, derived from the U.S. Supreme Court’s decision in Walling v. Portland Terminal Co., to determine if an individual is an intern or an employee. To be considered an intern that is not subject to the FLSA all parts of this six-part test must be met: 

1. The training, even though it includes actual operation of the facilities of the employer, must be similar to that which would be given in a vocational school. 

2. The training must be for the benefit of the intern. 

3. The interns must not displace regular employees, and must work under close supervision. 

4. The employer that provides the training must not derive any immediate advantage from the activities of the interns and, on occasion, the employer’s operations may actually be impeded. 

5. The interns must not necessarily be entitled to a job at the completion of the training period. 

6. The employer and the intern must understand that the interns are not entitled to wages for the time spent in training.

If an intern does not meet any element of this six-part test, he or she is likely covered by the FLSA and entitled to a minimum wage and overtime pay. See http://www.dol.gov/whd/regs/compliance/whdfs71.pdf

The DOL has historically applied this test very strictly. For instance, a company operated an internship program through which students were able to learn marketing, promotion and statistical analysis in a real-world setting. The company hired students to work approximately seven to ten hours per week, without pay, to perform various duties that regular staff members also performed, including acting as field-marketing representatives for the company on campus, testing various internet marketing strategies and compiling data from various sources to predict trends. The internship program was only open to students who would receive college credit, and a faculty coordinator was responsible for advising the student interns and communicating with the company supervisor on a regular basis regarding the interns’ performance. Based on these facts, the DOL was unable to determine whether the company could classify the student interns as exempt from the FLSA, i.e., that these interns did not need to be paid. The DOL did find that the internship program likely met the parts of the test concerning training similar to that of a vocational school, training for the benefit of the students, no expectation of compensation and no obligation of hiring. However, the DOL said it was unclear whether the students were displacing regular employees and whether the company was deriving an immediate benefit from the students’ efforts, particularly since the company had described the internship program as allowing students to assume the role of regular staff members. It is important to note that as it was engaging in its analysis, the DOL did not find controlling that the parties agreed at the outset that the internship would be unpaid; in other words, interns cannot waive their rights under the FLSA by agreeing to work without pay.

The impact of misclassifying interns can be significant. In addition to paying the interns minimum wage and overtime for all hours worked, liquidated damages and attorneys’ fees may be recovered and personal liability may exist for certain key decision-makers under the FLSA.

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