Nothing says summer like an unpaid internship. It’s a chance for a college student or new entrant to the job market get a foot in the door, learn about a company and gain (hopefully) valuable experience. For employers, an unpaid internship is a great way to bring in extra help at little-to-no cost at a time when many regular employees want to hit the beach. It also helps employers to identify and evaluate potential future hires in the real-world work environment.
But back in 2010, the United States Department of Labor put a damper on the legality of unpaid internships. It issued a Fact Sheet, which takes a very hard line on when a for-profit company may offer unpaid internships without violating the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA). The Fact Sheet sets forth a six-criteria test for determining whether an internship can be unpaid:
- The internship is similar to training that would be given in an education environment;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion it operations may actually be impeded;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and intern understand that the intern is not entitled to wages for the time spent in the internship.
Taken together, these criteria made it very difficult to have legitimate unpaid internships.
A few weeks ago, the Court of Appeals for the Second Circuit decided Glatt v. Fox Searchlight Pictures Inc., in which it declined to adopt the test set forth in the Fact Sheet as too rigid. Instead, the Court adopted a more flexible approach that looks at whether the intern or the employer is the primary beneficiary of the relationship. If the intern is the primary beneficiary, then the internship is appropriately unpaid. If it is the employer, then the intern should be a paid employee. Determining who is the primary beneficiary is based on the totality of the circumstances and this is a much more flexible approach to deciding whether an intern needs to be treated as an employee.
But employers should not be quick to think that the battle is over. First, the plaintiffs in Glatt could seek further review, such as before the Supreme Court. Second, the DOL is not changing its position, and other federal courts of appeals might decide the issue differently. Third, the test adopted in Glatt still means that some interns could sue and claim to be owed the minimum wage and overtime.
Lastly, for those of us in Massachusetts, it probably does not matter. The Massachusetts minimum wage law covers interns unless the internship can be classified as a “training program” in a charitable, educational or religious institution. The Massachusetts Department of Labor Standards has adopted the Fact Sheet criteria for determining whether an internship qualifies as a training program under the Minimum Fair Wage Law. Indeed, Massachusetts has expanded the test to cover both for-profit and non-profit entities. Thus, regardless of whether the Fact Sheet is dead under the FLSA, its rigid test is alive and well in Massachusetts.