Just last month, the Eleventh Circuit Court of Appeals became the second of its kind to reject the Department of Labor’s six-factor test for analyzing whether an individual qualifies as a lawfully unpaid intern or an employee entitled to pay under the Fair Labor Standards Act.

The Department of Labor’s Wage and Hour Division has established a six-part test to determine whether an unpaid internship is lawful:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Under the DOL’s test, each of these criteria must be met for an individual to qualify as an unpaid “intern.” If the criteria are not satisfied, the individual will be deemed an “employee,” thereby entitling him or her to back pay under the FLSA.

But in Schumann v. Collier Anesthesia, P.A., the Eleventh Circuit rejected the DOL’s six-factor test. The Schumann case arose out of a nurse anesthetists’ master’s degree program at Wolford College in Florida. As part of the program, students participated in a clinical curriculum that, under Florida law, was a prerequisite to the students obtaining their master’s degrees. The students filed suit, arguing that Wolford was treating them as employees, not interns, thereby rendering the FLSA’s protections applicable to them. The trial court granted summary judgment to the defendants, finding that the interns were not employees and, thus, had no FLSA claim.

On appeal, the students argued that the district court erred in failing to apply the DOL’s six-factor test to determine whether the FLSA applied. The Schumann court ultimately punted on the question of whether the students were employees or interns, instead electing to adopt a new standard for analyzing such cases and remanding for the trial court to apply the standard.

The court began its decision by noting, like other courts have, that the FLSA’s definitions are unhelpful in determining whether an unpaid intern qualifies as an “employee” under the statutory scheme. The U.S. Supreme Court tackled this subject matter in Walling v. Portland Terminal Co., 330 U.S. 148 (1947), developing the six factors that the DOL now cites as guidance. But Portland Terminal was decided a long time ago and against a background very different from what most courts see today. Recognizing this complication, the Schumann court noted that the DOL’s six-factor guidance merely “reduce[s] the specific facts of Walling [] to a test” and “did not arise as a result of rule-making or an adversarial process.”

The Second Circuit similarly criticized this six-factor test in Glatt v. Fox Searchlight Pictures, Inc., 791 F.3d 376 (2d Cir. 2015), decided earlier this year. In Glatt, the Second Circuit developed a seven-factor test, largely by tailoring the prong from Portland Terminal that asks whether the intern or employer is the “primary beneficiary” of the internship. The seven, non-exclusive Glatt factors are as follows: (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 similar to what 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; and (7) the extent to which the intern and employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

Finding Glatt to be well-reasoned yet “faithful to Portland Terminal,” the Eleventh Circuit adopted the Second Circuit’s newly-established seven-factor test, concluding that it is more practical and applicable to the modern-day internship. The Schumann court cautioned, however, that each case should turn on its own and that the Glatt factors are not an “all or nothing” approach. For example, the court warned, there could be circumstances wherein an employer could take advantage of an intern by requiring the intern to perform tasks well beyond the reasonable scope of the internship.

So what does this mean for employers in Tennessee? The Sixth Circuit has not yet weighed in on this recent development, though it would have the option of adopting either or neither test. Nevertheless, the DOL has not changed its position and would likely apply its own standard in any administrative proceedings. Given the reasoned analysis in both Glatt and Schumann, it is likely that any federal court reviewing an intern program under the FLSA would take a hard look at the seven-factor “primary beneficiary” test that has now been adopted by two federal circuits in a very short amount of time. In the meantime, employers would be wise to analyze their unpaid internships against both standards. Given the overlap between the two, this is not as daunting a task as it may seem at first glance. Employers should also make clear that interns are being assigned tasks that fit cleanly within the scope of the internship to avoid any argument that interns are being treated as employees for some, though not all, purposes. We will be keeping a close eye on this evolving area of the law.

The information contained on this blog is not legal advice, nor does this blog create an attorney-client relationship. Klein Bussell attorneys do not blog about pending matters handled on behalf of our clients and will never disclose client confidences.

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