Just as many employers are heading into the 2018 summer-intern recruitment season, the U.S. Department of Labor (“DOL”) announced that it has abandoned the rigid six-factor test in use since 2010 to determine whether interns of for-profit entities must be treated as paid employees. Under the DOL’s previous six-factor test, an intern was deemed to be an employee unless all six-factors were met, increasing the likelihood that an employer would end up having to pay its interns a minimum wage and overtime under the Fair Labor Standards Act (“FLSA”).

The DOL pulled back its six-factor all-or-nothing approach after the Ninth Circuit Court of Appeals became the latest federal circuit to reject the agency’s overly-rigid approach to determine whether an intern or student is, in fact, an employee under the FLSA. In its place, the DOL has adopted a “primary beneficiary test,” which allows the agency and courts to examine the economic reality of the intern-employer relationship to determine which party is the primary beneficiary of the relationship.

Under the DOL’s flexible economic realities test, an employer need not pay a minimum wage or overtime to a student intern or vocational student who is viewed as the primary beneficiary of the intern-employer relationship, applying a seven factor test under which all seven factors are weighed and balanced against each other and no single factor is determinative. The seven factors are:

1. The extent to which the intern and 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 equivalent to that which would be given in an educational environment, including clinical or other hands-on training provided by educational institutions
3. The extent to which the internship is tied to the intern’s formal educational program by integrated course work or 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 undertaken without entitlement to a paid job at the conclusion of the internship.

With the DOL’s reliance on the economic realities, student interns who get the primary benefit of the relationship with the hiring entity are less likely to be seen by the DOL as employees. This should translate to fewer situations where a hiring entity will need to pay student interns a minimum wage or overtime and a reduced risk of ending up in court defending against a student intern law suit under the FLSA.