United States: Eleventh Circuit Adopts And Clarifies "Primary Beneficiary" Test For Unpaid Interns Under The FLSA

On September 11, 2015, the US Court of Appeals for the Eleventh Circuit handed down a landmark decision clarifying the circumstances under which unpaid interns are entitled to receive compensation under the Fair Labor Standards Act (FLSA). The Eleventh Circuit endorsed the Second Circuit's "primary beneficiary" test, which was the subject of our client alert in July. Although these two decisions are not binding precedent throughout the United States, any business in this country with an internship program needs to be aware of them and should monitor this rapidly evolving area of the law.

In Glatt v. Fox Searchlight Pictures, the US Court of Appeals for the Second Circuit rejected the FLSA overtime claim of a pair of unpaid interns who had worked for Fox on the 2010 film "Black Swan."  The Second Circuit rejected the lower court's reliance on the US Department of Labor's (DOL) six-factor test for determining when an intern is an "employee" under the FLSA,1 adopting instead the "primary beneficiary" test that looks at whether "the intern or the employer is the primary beneficiary of the relationship."  The Second Circuit then set out seven non-exclusive factors for courts and employers to consider when determining to whose benefit the internship inures:

  1. The extent to which the intern and the employer understand that there is no expectation of compensation.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment.
  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.

On September 11, 2015, the US Court of Appeals for the Eleventh Circuit became the first court since Glatt to endorse this framework in Schumann et al. v. Collier Anesthesia, P.A. et al.2   In Schumann, 25 former student registered-nurse anesthetists brought a claim under the FLSA for unpaid minimum wages and overtime incurred in connection with a clinical curriculum that was required by law before the students could acquire their degrees.  The lower court granted the defendants summary judgment on the grounds that the plaintiffs could not satisfy each element of the DOL's six-part test.  Endorsing the Second Circuit's Glatt reasoning in whole, the Eleventh Circuit reversed, rejecting the DOL's six-part test as "too rigid" for today's modern internship, and instead adopting the "primary beneficiary" test set out by the Second Circuit.

In so doing, the Eleventh Circuit particularly fleshed out the fourth and fifth Glatt factors.  With regard to the fourth factor, the court noted that, where "the clinical training and the academic commitment are one and the same," one must "account for whether a legitimate reason exists for clinical training to occur on days when school is out of session."  As to the fifth factor relating to the length of the internship, the Eleventh Circuit recognized that "designing an internship is not an exact science," and recommended that courts focus their attention on "whether the duration of the internship is grossly excessive in comparison to the period of beneficial learning."  The court therefore rejected a quantitative approach of looking at whether the internship is longer than "absolutely necessary" to accomplish the educational and experiential goals, adopting instead a qualitative approach of looking at the nature of the intern's daily schedule.

The court also rejected an "all-or-nothing" approach and envisioned a scenario where a portion of the student's efforts could constitute a bona fide internship, whereas another portion of the intern's work could be considered the work of an "employee" if the putative employer takes unfair advantage of the intern.  In the context of an internship required for an academic degree and professional licensure and certification in a medical field, for example, the court said a putative employer "who requires an intern to paint the [putative] employer's house in order for the student to complete an internship of which the student was otherwise the primary beneficiary" would be transforming the work of the intern into that of an "employee."  In that scenario, the court said the student would not be considered an "employee" for work performed "within the legitimate confines of the internship but could qualify as an 'employee' for all hours expended in painting the house, a task so far beyond the pale of the contemplated internship that it clearly did not serve to further the goals of the internship."

In the end, the court did not take a position as to whether the nursing students were employees under the FLSA, and instead remanded the case back to the trial court for further proceedings consistent with the "primary beneficiary" approach.

Takeaways:

  • Although there still remains a question as to whether the "primary beneficiary" test applies nationwide, there is clearly a trend in that direction.  Other circuits may choose to follow this trend, but are not required to do so.  More importantly, the DOL's six-factor test remains its official guidance and will likely be applied by the DOL in any administrative enforcement proceedings.
  • Employers should continue to audit their current unpaid internship programs to make certain the programs comply with both the "primary beneficiary" test, as articulated by the Second and Eleventh Circuits, and the DOL's six-factor test.  This includes not having unpaid interns displace regular employees, ensuring that the unpaid internship is tied to a formal educational program, and entering into a written agreement with the intern to memorialize the understanding that there is no expectation of remuneration during the course of the internship, nor is there a promise of permanent employment following the end of the internship.  Additionally, in light of the Eleventh Circuit's decision, employers should also examine the specific tasks interns are undertaking to ensure that all or part of their tasks are not "beyond the pale" of the contemplated internship.

The US employment and labor team at Dentons is ready to help you navigate this complicated area of the law, audit your current unpaid internship programs, and handle any dispute that may arise related to the same.

Footnotes

1. DOL Fact Sheet #71, available at http://www.dol.gov/whd/regs/compliance/whdfs71.htm.

2. A copy of the decision is available here: http://media.ca11.uscourts.gov/opinions/pub/files/201413169.pdf and at 2015 WL 5297260.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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