Unpaid interns - the current legal landscape in New York
February 2, 2022
For many years hiring unpaid interns in the United States was a risky proposition due to the Department of Labor’s “six factor test”, which set out the factors that determine whether an intern is really an intern (and therefore exempt from applicable employment laws), or whether an intern is an employee (and subject to employment protections, including the right to be paid). The U.S. Dept. of Labor had set out that the following six factors “must be applied” when making this determination.
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;
The internship experience is for the benefit of the intern;
The intern does not displace regular employees, but works under close supervision of existing staff;
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;
The intern is not necessarily entitled to a job at the conclusion of the internship; and
The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
Under the accompanying guidance, the Dept. of Labor made clear that all of the factors would have to be met for an employment relationship not to exist. The first and fourth were the most difficult as many unpaid internships are unstructured and do benefit the employer in some way.
The landscape started to change in 2015 when the 2nd Circuit ruled that rather than the six-factor test being determinative, in fact the correct test to be applied was the “primary beneficiary” test - is the internship primarily benefiting the intern, or the employer? The 6th, 9th and 11th Circuit courts soon followed and in 2018 the Dept. of Labor revised their test, implementing a new seven factor test (which incorporates many of the same factors), but that indicates that no single factor is determinative:
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.
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.
The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
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.
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.
Rather than having to satisfy all seven factors, the Dept. of Labor indicates that whether an intern or student is an employee “necessarily depends on the unique circumstances of each case” and that “no single factor is determinative”.
New York adopts a stricter approach:
While the above guidance is applicable under the federal FLSA (Fair Labor Standards Act), states are entitled to adopt their own separate, more “generous” (to the intern) rules. New York has done this by not only retaining the original six factors, but also adding an additional five factors which all must be considered when determining whether an intern/trainee is actually an employee for purposes of the state’s Minimum Wage Act. These are:
Any clinical training is performed under the supervision and direction of people who are knowledgeable and experienced in the activity.
The trainee does not receive employee benefits (including “employee” type discounts)
The training is general, and qualifies trainees to work in any similar business. It is not designed specifically for a job with the employer that offers the program.
The screening process for the internship program is not the same as for employment, and does not appear to be for that purpose. The screening only uses criteria relevant for admission to an independent educational program.
. Advertisements, postings, or solicitations for the program clearly discuss education or training, rather than employment, although employers may indicate that qualified graduates may be considered for employment.
The state’s policy is designed to prevent unscrupulous employers from escaping New York’s labor laws by characterizing a productive workers as an intern. Unfortunately, it also makes employers more wary of the hosting unpaid interns which are a valuable tool for the intern to gain knowledge and hands-on experience. Perhaps a better balance is needed.
