United States: New Rules Impact Companies Who Use Interns And Apprentices

Many employers in the U.S. utilize student interns or apprentices to work on a short-term basis. Oftentimes, companies make such internship or apprenticeship opportunities available without offering pay for the provision of services, and indeed, many times students and others new to the workforce have been more than willing to work without pay for the opportunity to gain valuable job experience and skills they can utilize in the future.

The federal Fair Labor Standards Act ("FLSA") and state and local laws require employers to pay employees for their work. Interns and students, however, may not be considered employees and do not have to be paid when certain criteria are met.

In recent years the U.S. Department of Labor ("DOL") has taken a rather dim view on the practice of unpaid internships and applied a test in order for a company to justify bringing in a worker to serve as an unpaid intern that proved very difficult to meet. In January 2018, however, the DOL changed course on this topic and expressed a position that should permit more companies to bring in unpaid interns and apprentices without the same fear of potential wage liability.

The DOL's OLD Standard

Determining when an unpaid intern or apprentice may actually be considered an employee (and thus should be compensated as such) has been a difficult-to-hit target in recent years. The criteria the DOL used from 2010 until January 2018 consisted of six factors:

  1. The internship was similar to training that would be given in an educational environment, even if it included actual operation of the facilities of the employer;
  2. The internship experience was for the benefit of the intern;
  3. The intern did not replace regular employees;
  4. The employer derived no immediate advantage from the intern's activities;
  5. The intern was not necessarily entitled to a job at the end of the internship; and
  6. The employer and intern understood that the intern was not entitled to wages.

Meeting this standard was very difficult for many companies. It was oftentimes difficult to show that the company itself was not benefitting from the work of the intern, and the reality is that in order to get hands-on experience, many interns would indeed do work that the company's normal, paid employees would otherwise do. Such a risk was particularly acute for companies that bring in apprentices to essentially do the work of regular employees, but without compensation, in the hopes of learning skills, making a good impression and hopefully getting a "real" job out of the arrangement, because such apprentices have oftentimes been considered employees and the company has faced liability for unpaid wages.

The DOL's NEW Standard

In January 2018, the DOL released "Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act" in which the DOL announced a more employer-friendly standard to assess whether a company can bring in interns or apprentices and not have to compensate them with at least minimum wage and with overtime pay. The new criteria focus on the following:

  1. Do the employer and the intern both clearly understand that there is no expectation of compensation for the job?
  2. Does the internship provide training similar to that given in an educational environment?
  3. Is the internship tied to a formal education program with coursework and/or academic credit?
  4. Does the internship fit into the intern's academic calendar?
  5. Is the length of the internship limited to a period where they are provided with beneficial learning?
  6. Does the intern's work assist or complement the work of paid employees instead of displacing paid workers?
  7. Does the intern understand that he/she is not entitled as a matter of right to receive a paid job once the internship has ended?

No single factor described above is determinative. Ultimately, the overriding question is this – who is the primary beneficiary from the arrangement? When it is the individual intern or apprentice, then it is more likely that the person will be deemed a bona fide intern and not eligible for pay or benefits. However, when the real beneficiary in the arrangement is the company – i.e. because they are simply trying to get free labor out of the deal – it is more likely that the person would be deemed an employee and entitled to minimum wage and overtime under the FLSA.

Practical Advice

Even under these new, relaxed standards, a company cannot avoid its obligation to pay workers simply by calling the person an intern or apprentice. Labels are not determinative. Complying with the criteria described above is crucial. A few additional pointers can help avoid problems:

  • In order to establish that the intern or apprentice clearly understands that the position is not paid, have something in writing, with the individual's signature, acknowledging the unpaid nature and limited duration of the position.
  • Check with the individual's school to see if the school itself has criteria for internships and to see if the individual will get school credit for the internship.
  • Do not bring in interns or apprentices to replace a regular paid employee or to avoid having to make a new hire. Also, the intern should have work assignments crafted to their situation and not provided with simply the same work assignments as the company's other, regular employees.
  • Limit the amount of clerical work given. Do not just give the intern the "dirty work" that your other, paid employees would otherwise have to do but do not necessarily want to do. An individual who simply stuffs envelopes for the summer is less likely to be considered a legitimate intern.

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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