Richard D. Tuschman, P.A. Employment Lawyers

The U.S. Department of Labor uses a six-part test to determine whether interns should be classified as employees and therefore entitled to the minimum wage and overtime under the Fair Labor Standards Act. Under the DOL test, all six criteria must be met in order for the worker to qualify as an unpaid trainee or intern, and not as a paid employee. Applying this test, many employers have concluded that it is difficult, if not impossible, to use unpaid interns without running afoul of the FLSA.

Employers may want to revisit that conclusion in light of last week’s decision by the Eleventh Circuit Court of Appeals in Schumann v. Collier Anesthesia, P.A., No. 14-13169, 2015 WL 5297260, at *1 (11th Cir. Sept. 11, 2015). In Schumann, the Eleventh Circuit rejected the DOL’s test in favor of a more flexible “economic realities” test that focuses on whether the company or the worker is the “primary beneficiary” of the arrangement. In reaching this decision, the court focused on the important role that unpaid internships can play in preparing students for their chosen careers, and signaled that courts will be more accepting of such arrangements.

The plaintiffs in the case included twenty-five former student registered nurse anesthetists (“SRNAs”) who attended a master’s degree program at for-profit Wolford College with the goal of becoming certified registered nurse anesthetists (“CRNAs”). The SRNAs participated in a clinical curriculum, which, under Florida law, was a prerequisite to obtaining their master’s degrees. The SRNAs, who were not paid for their clinical hours, sued to recover unpaid wages and overtime under the FLSA. The district court, applying the six-part DOL test, determined that the SRNAs were not employees and were not entitled to be paid. The SRNAs appealed, asserting that the district court should have applied the DOL’s test.

On appeal, the Eleventh Circuit rejected the DOL’s test. The court noted that the DOL test is not a regulation and therefore not entitled to the heightened deference given to regulations. Reviewing the DOL’s test, the court opined that it is “rigid” and unpersuasive. Instead, the court focused on the Supreme Court decision from which the DOL test was derived, Walling v. Portland Terminal Co., 330 U.S. 148, 67 S.Ct. 639 (1947), and judicial decisions interpreting Portland Terminal.

Under Portland Terminal and its progeny, the primary focus is on whether the company or the worker is the primary beneficiary of the arrangement. But the court noted that that this is not easy to discern “where both the intern and the employer may obtain significant benefits.” Unlike the training involved in the Portland Terminal case, the court noted, “[m]odern internships can play an important—indeed critical—role in preparing students for their chosen careers.”

Imagine if a CRNA could report to work on her first day and be allowed unsupervised to conduct the induction, maintenance, and emergence phases of anesthesia administration, having only ever read about or watched someone else perform them. The potential danger and discomfort to the patient under such circumstances is self-evident and startling. So we need anesthesiologists and CRNAs who are willing to teach SRNAs their trade through internships.

At the same time, the court acknowledged the “potential for some employers to maximize their benefits at the unfair expense and abuse of student interns.”

The best way to resolve this dilemma, the court wrote, “is to focus on the benefits to the student while still considering whether the manner in which the employer implements the internship program takes unfair advantage of or is otherwise abusive towards the student.” “This orientation,” the court wrote, “allows for student internships to accomplish their important goals but still accounts for congressional concerns in enacting the FLSA.”

The court went on to endorse Second Circuit’s list of factors for determining the “primary beneficiary” in cases involving student internships. Those factors are:

  1. 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.
  2. 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.
  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.

The court expressed no opinion on whether the SRNAs were employees, but instead remanded the case to the district court to apply the court’s new legal test.

The takeaway from Schumann is that, at least in the Eleventh Circuit (which covers Florida, Georgia, and Alabama), employers should now find it easier to employ unpaid interns without running afoul of the FLSA. Employers should still implement unpaid internship programs with great care and, in most cases, with the assistance of legal counsel.