Employers who take on interns, externs or trainees should be aware that if the arrangement qualifies as employment under the Fair Labor Standards Act (FLSA), the Act's minimum wage and overtime provisions apply. Any employer hosting an unpaid internship, externship or training program - or a program that does not comply with the FLSA's minimum wage and overtime requirements - should audit their program to be certain that the trainees or students do not qualify as employees.
Recently, the U.S. Department of Labor (DOL) provided guidance for externs as described below.
When Are Trainees Employees?
According to the DOL, an employment relationship does not exist if ALL of the following factors are satisfied. (Beneath each factor are helpful, but non-dispositive, questions for employers to ask as part of their own self-audit.)
1. The training is similar to what would be given in a vocational school or academic educational instruction.
2. The training is for the benefit of the trainees or students.
3. The trainees or students do not displace regular employees, but work under their close observation.
4. The employer that provides the training derives no immediate advantage from the activities of the trainees or students, and on occasion the employer's operations may actually be impeded.
5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period.
6. The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.
Applying the Employment Test
Due to the fact-specific nature of the test for determining the status of a trainee or student, it is helpful to examine the application of the test to specific scenarios. The following examples are based on opinion letters issued by the DOL's Wage and Hour Division. The numbers in parentheses correspond to the above six factors of the employment test.
A company that provided prospective telemarketing representatives with four days of unpaid training - for a total of 18.5 hours - was not deemed to have created an employment relationship. The DOL found that the program satisfied all six factors of the employment test: (1) The training was similar to vocational school instruction because it involved computer-automated systems, communications, sales skills and customer service methodology. (2) The trainees benefited because the skills learned were transferable to jobs with other employers and the training was provided free of cost. (3) The trainees did not displace regular employees because the training was in the classroom rather than on the production floor, the work did not replace or supplement the work of any employee, there was only 30-60 minutes of contact with customers, and the contact with customers was supervised. (4) The employer did not derive a benefit because customer contact was limited and other employees needed to supervise the trainee's work. Creating a qualified labor pool of potential employees was deemed an insufficient benefit to create an employment relationship. (5) Trainees were not guaranteed employment and (6) acknowledged in writing that they would not be compensated. Trainees did receive a training completion bonus, but it was not large enough to create an employment relationship.
Pre-Hire Job View
An employer proposed to require applicants to observe the job for 7.5 hours before being hired. The DOL found that the program did not create an employment relationship as long as (5) applicants would be clearly informed that they had not been hired prior to the job view. The DOL also found that the other prongs of the test were all satisfied: (2) The applicants would benefit from seeing if the job suited them. (3) The applicants would not displace regular employees because they would not perform productive work or assist employees. (4) While the employer would benefit from decreased turnover, this was deemed insufficient to create an employment relationship. Finally, (6) the participants would be advised in writing that they would not be paid.
Summer Job Training
A company proposed a program for low-income youth to intern at workshops and local businesses - performing a combination of entry-level administrative tasks, clerical work, and chores for elderly and disabled neighbors. Participants would be given $5 vouchers for use at local businesses. (4) The DOL decided that the result in this scenario would turn on whether the work performed by the participants would be offset by the burden to the employer of the training and supervision. The DOL found that the program satisfied the other five factors: (1) The program was similar to instruction received at a vocational school because it involved clerical and community improvement skills. (2) The program benefited participants because it provided skills applicable to other jobs. (3) No regular employees were displaced, (5) participants were not necessarily entitled to a job, and (6) all parties understood that the position would not be paid. The vouchers were not substantial enough to constitute wages.
A university administered an externship program in which students shadowed employees at various workplaces. The DOL found that the program did not create an employment relationship: (1) The DOL noted that most externship and internship programs are extensions of academic programs. (3) The externs did not displace regular employees because, while the students performed small office tasks, they did not generally perform work for the employer. (4) The employer did not benefit from the arrangement because of the one-week duration of the program and the minimal amount of work performed by the externs. The benefit of screening future interns or employees was deemed insufficient to create an employment relationship.
An employer hosted an internship program to teach marketing, promotion and statistical analysis. Structured like a college marketing course, the interns received college credit. The interns worked as field marketing representatives and performed employee tasks such as distributing flyers, collecting demographic data, conducting surveys and tracking website effectiveness. The DOL found that the program did not create an employment relationship. (1) The program was similar to instruction that might be provided in an educational institution because it was structured like a college Marketing course, with a syllabus and assignments. (2) The program benefited the interns because they received college credit. (3) However, the DOL found that it was unclear whether the interns displaced regular employees. On the one hand, the interns worked a maximum of ten hours per week, making it unlikely that they displaced regular employees. On the other, the employer had represented that the interns were "expected to assume the role of regular staff members of the company." Additionally, it was unclear to what extent the interns were supervised. (4) The DOL also wrote that it was unclear whether the employer derived an immediate benefit from the interns' activities and whether the supervision was substantial enough that it might impede the company's operations.
The Professional Exemption
Even if trainees or students are deemed to be employees, they may qualify for the FLSA's professional exemption from the overtime provisions of the FLSA - depending on the profession. In order to qualify, the employee's primary duty must be "the performance of work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction." Work satisfying this definition will be primarily intellectual, rather than involving routine mental, manual, mechanical or physical work. Skilled trades and the mechanical arts may require a high degree of knowledge, but nonetheless do not qualify as fields of science or learning. Additionally, specialized academic training must be a prerequisite for entrance into the profession.
The professional exemption is also available to employees "who have substantially the same knowledge level and perform substantially the same work as the degreed employees, but who attained the advanced knowledge through a combination of work experience and intellectual instruction." In the fields of law and medicine, interns and residents qualify as exempt professionals if they have completed the relevant degree, even if they are not yet licensed to practice. In most fields, employees must be paid at least $455 per week on a salary basis in order to qualify for the professional exemption. However, these requirements do not apply to outside sales employees, teachers and employees practicing law or medicine.
Take the example of a summer legal intern. One who has completed his law degree (i.e., a third-year law student) may qualify for a professional exemption, but a legal intern still pursuing his or her degree (i.e., a first- or second-year law student) would likely not qualify. A first- or second-year law student would not fall under the internship provision, would likely not have the same knowledge or perform substantially the same work as a practicing attorney, and would likely not have attained the advanced knowledge through a combination of advanced study and intellectual instruction.
Conclusion And Tips For Employers
Employers should closely examine their policies with regard to trainees and students. It is advised to have trainees sign a Release from Liability Agreement that includes a section confirming the satisfaction of the six factors of the employment test. It is particularly important to ensure that the trainee or student confirm in writing that there is no guarantee of future employment and that no wages will be paid. Keeping in mind that the language would need to be formulated to fit the particular program, the following is an example of one such statement:
Volunteer Trainee Status
I understand that volunteering for the internship program in no way makes me an employee of [Firm Name]. I will not be entitled to any compensation for my services in connection with the internship program and will not be entitled to any of the benefits [Firm Name] provides to its employees. I will learn under the close observation of [Firm Name] employees but will not replace any of them. The internship program will be a learning experience for me and will be for my benefit. I will not be providing services to [Firm Name]. The training I receive in connection with the internship program will be general to the industry in which I am interested in working after graduation; it is not specific to employment with [Firm Name] and it does not entitle me to later employment with [Firm Name].
Also, employers should be aware that workers' compensation eligibility for trainees and students varies by state and is not governed by the same factors and definitions as the FLSA. After checking your state law, you may want to include in the Release from Liability Agreement a section confirming that, to the extent permitted by law, the trainee or student will be covered by worker's compensation insurance. The following is an example:
Workers' Compensation Insurance
To the extent permitted by law I understand that any injury, incident, or illness will be covered by applicable state workers' compensation insurance and I so intend to invoke such coverage or allow [Firm Name] to do so on my behalf.
It also may be prudent to incorporate an arbitration process to minimize the risk of litigation, as well as an attorney's fees provision.
If trainees or students under the age of 18 are determined to be employees under the FLSA, remember that the FLSA child labor requirements will apply. Also, employers should be sure to inquire into state laws governing child labor and the age of consent for the purpose of entering into a contract.
Published August 1, 2006.