By Tammy Binford

The U.S. Department of Labor’s (DOL) announcement that it is nixing its 2010 guidance on unpaid internships in favor of a less-rigid test puts the agency in line with recent appellate court rulings on the issue, according to an attorney following the matter.

Matthew H. Parker, an editor of Rhode Island Employment Law Letter and attorney with Whelan, Corrente, Flanders, Kinder & Siket LLP in Providence, Rhode Island, says the new policy isn’t “a sea change in how to classify interns” but does align the DOL’s standard with recent appellate court rulings.

On January 5, the DOL issued a new fact sheet on when interns working at for-profit employers are subject to the Fair Labor Standards Act (FLSA). The new policy replaces the six-part test issued in 2010 that outlined what justified an unpaid internship and when interns needed to be paid at least minimum wage as well as overtime.

Unpaid internships were harder to justify under the old six-part test, but even under the new policy, employers have to make sure interns are the “primary beneficiary” of internships if they are not paid.

In 2015, the U.S. 2nd Circuit Court of Appeals set out a standard different from the 2010 DOL guidance in Glatt v. Fox Searchlight Pictures, Inc. Since then, other circuits have fallen in line with the factors outlined in Glatt. Those factors are included in the new DOL fact sheet.

The new policy uses the primary beneficiary test to determine whether an intern must be paid as an employee. To be unpaid, the intern—not the employer—must be the primary beneficiary of the arrangement. The DOL’s new fact sheet states that courts have identified the following seven factors to consider:

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation;
2. The extent to which the internship provides training that is similar to training given in an educational environment, including 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 it 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; and
7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at its conclusion.

Any promise of compensation, express or implied, suggests that the intern is an employee and vice versa.

Parker says that for employers in many jurisdictions, the policy hasn’t changed because of what courts have already said, but any for-profit employer considering offering an unpaid internship needs to make sure that the intern is the primary beneficiary, not the employer.

Employers need to take a hard look at the seven factors in the new fact sheet. Parker says employers must consider, among other things, (1) whether an unpaid intern displaces a paid employee, (2) whether the intern understands that the internship is unpaid, (3) whether the intern gets educational credit, and (4) how the internship correlates to the intern’s school schedule.

No one factor is dispositive, Parker says. Under the old guidance, all six of the outlined points had to be met.

Even with a less-rigid standard, however, employers need to be careful. “Don’t think you can just evade paying someone minimum wage and overtime because you label it an internship,” Parker says. The main takeaway from the policy change is that employers need to make sure that interns get more out of the internship than the employers do.

Barbara J. Koenig, a contributor to New Mexico Employment Law Letter and an attorney with Foster, Rieder & Jackson, P.C., in Albuquerque, New Mexico, agrees that the new policy is more flexible than the old one. But she says employers need to understand that the new policy is intended to encourage internships that are tied to actual learning experiences connected with academic institutions.

The old, stricter policy likely discouraged employers from offering unpaid internships. On whether the new policy will encourage employers to use unpaid interns, Koenig says not necessarily. “But academic institutions may feel more comfortable now with clearer guidance when asked by a for-profit company to send interns [its] way. The academic institution has the DOL guidance to support the institution’s insistence on oversight and reporting,” she says.

Koenig’s advice to employers offering a paid or unpaid internship is to “work closely with an academic institution to set up an appropriate internship that comports with the DOL guidelines.”