DOL Says Hello to Primary Beneficiary Intern Test, Goodbye to 6-Factor Test

Earlier this month, the U.S. Department of Labor announced it will now use the primary beneficiary test” to determine whether an intern must be paid.  Its announcement comes in the wake of the 9th Circuit’s adoption of the test, joining the 2nd, 6th, and 11th Circuits.  With the announcement, the DOL also updated Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act. These moves displace a 6-part test the DOL adopted in 2010 that required all factors weigh in favor of the employer.

The Second Circuit first rejected the DOL’s 6-part test in favor of the primary beneficiary test in 2015, in Glatt v. Fox Searchlight Pictures Inc. Within months, the 11th Circuit immediately followed suit. The Employment Law Observer blogged about the primary beneficiary test shortly afterward. Since that was forever ago, let us revisit the test here.

The primary beneficiary test is a 7-factor balancing test that measures whether the student/intern or employer is the primary beneficiary of the employer-intern relationship.  If the intern/student is the primary beneficiary, he or she is not and employee and need not be paid. If the employer is the primary beneficiary, the student/intern is an employee and must be paid. To determine which party is the primary beneficiary, employers must examine the “economic reality” of the relationship using the 7 factors:

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.

Unlike the former DOL test, the primary beneficiary test is flexible, meaning no single factor is determinative. As such, employers must carefully assess whether it or the intern is the primary beneficiary of the relationship on a case-by-case basis.  If the employer is the primary beneficiary, it must pay at least minimum wage and overtime.