October 01, 2014 Distinguishing Interns from Employees

Posted at 14:52h in Client Memos by
0 Likes

 

KEEPING YOU INFORMED…

With the fall season upon us and a new class of interns commencing internships with employers across New York State, we are writing to remind you of the State and federal laws governing how to determine whether an individual is an intern or an employee, and recent legal protections provided to unpaid interns.

Intern or Employee?

When determining whether an individual meets the definition of an “intern,” New York employers must adhere to the guidelines set forth by both the United States Department of Labor (“USDOL”) and the more restrictive criteria established by the New York State Department of Labor (“NYSDOL”). The sections below explain the different tests used by the USDOL and the NYSDOL to determine whether an individual is an intern or an employee, as well as the New York State Human Rights Law’s (“NYSHRL”) definition of an “intern” for the purpose of determining whether an individual is entitled to the recently expanded anti-discrimination and anti-harassment laws.

The Fair Labor Standards Act (“FLSA”) and the Six Factor Test

The FLSA, which establishes minimum wage, overtime pay, recordkeeping and youth employment standards affecting covered employees, broadly defines the term “employ” to mean “to suffer or permit to work.” As a result, covered and non-exempt individuals who are “suffered or permitted” to work must be compensated for services they perform for their employer. The FLSA excludes from the definition of “employee” (and so the FLSA does not apply to) those individuals who volunteer their services for a public agency of a state, a political subdivision of a state or an interstate governmental agency if: (1) the individual receives no compensation or is paid expenses, reasonable benefits, or a nominal fee to perform the services for which the individual volunteered; and (2) the services are not the same type of services that the individual is employed to perform for the public agency.

However, individuals who participate in “for profit” private sector internships or training programs may do so without compensation under certain circumstances, as set forth by the USDOL using the following six factor test to determine whether an internship/training program or an employment relationship exists between the “intern” and the employer:

(1) 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;

(2) The internship experience is for the benefit of the intern;

(3) The intern does not displace regular employees, but works under close supervision of     existing staff;

(4) 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;

(5) The intern is not necessarily entitled to a job at the conclusion of the internship; and (6) The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.[1]

While the USDOL has taken the position that all of the factors must be met in order to demonstrate that the individual is in fact an intern, the six factor test has not been consistently applied by the courts. Some courts have found the six factors to be relevant, but not conclusive, and others have ignored the factors in favor of the more traditional “primary beneficiary” test, which balances whether the benefits to the intern outweigh the benefits to the engaging entity.

Neither the USDOL nor the courts have created a bright-line rule regarding whether a stipend paid to an intern must comply with the minimum wage and overtime requirements. Employers should be cautious when implementing this type of compensation plan and should consult with legal counsel to ensure that the program meets applicable wage and overtime requirements.

The New York State Minimum Wage Act and the Eleven Factor Test

The New York State Minimum Wage Act (“the Act”) establishes the minimum wage for all individuals who meet the statutory definition of “employee.” Excluded from that definition are those individuals who are employed or permitted to work by a federal, State or municipal government. In other words, the Act only applies to private sector employees.

To determine whether an intern is actually an employee and therefore covered by the Act, the NYSDOL analyzes the “totality of circumstances,” using the USDOL’s six factor test plus five additional factors. An employment relationship does not exist, and thus the individual is an intern or trainee, if all of the following criteria are met:

  • The training, even though it includes actual operation of the facilities of the employer,   is similar to training that would be given in an educational environment;
  • The training is for the benefit of the intern;
  • The intern does not displace regular employees and any work the intern may do is under close supervision;
  • The employer who provides the training derives no immediate advantage from the activities of the intern and, on occasion, operations may actually be impeded;
  • The intern is not necessarily entitled to a job at the conclusion of the training period and is free to take employment elsewhere in the same field;
  • The intern has been notified, in writing, that he will not receive any wages for the training and is not considered to be an employee for minimum wage purposes;
  • Any clinical training is performed under the supervision and direction of individuals knowledgeable and experienced in the activities being performed;
  • The intern does not receive employee benefits;
  • The training is general, so as to qualify the intern to work in any similar business, rather than designed specifically for a job with the employer offering 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, but involves only criteria relevant for admission to an independent educational program; and
  • Advertisements for the program are couched clearly in terms of education or training, rather than employment, although employers may indicate that qualified graduates may be considered.[2]

The New York State Human Rights Law’s Definition of “Intern”

The NYSHRL, which applies to New York State employers with four or more employees, was recently amended to add a section prohibiting discrimination and harassment against unpaid interns. The law provides that, like regular employees, unpaid interns, as defined below, may not be discriminated against because of age, race, creed, color, national origin, sexual orientation, military status, sex, disability, predisposing genetic characteristics, marital status, or domestic violence victim status. It also creates a right of action for unpaid interns who are subjected to sexual or other forms of harassment.

An “intern” is defined by the NYSHRL as a person who performs work for an employer for the purpose of training under the following circumstances:

  • The employer is not committed to hire the person performing the work at the conclusion of the training period;
  • The employer and the person performing the work agree that the person performing the work is not entitled to wages for the work performed; and

 

The work performed:

  • provides or supplements training that may enhance the employability of the intern;provides experience for the benefit of the person performing the work;
  • does not displace regular employees; and
  • is performed under the close supervision of existing staff.[3]

The New York State Division of Human Rights makes it clear that any person who is paid for work, even if designated as an “intern” by the employer, will likely be considered to be a regular employee for the purposes of the NYSHRL and will be afforded the same protections provided to other employees.

Conclusion

The Second Circuit has yet to clarify the appropriate legal standard to be used when determining whether an intern is an “employee” pursuant to the FLSA. Until the case law becomes clear, we recommend that you develop your internship program consistent with the eleven factor test set forth by the NYSDOL. Additionally, your letter offering an internship position should explicitly state that the individual will not be paid, the offer is contingent upon the individual securing school credit for the internship (which has been a consistently relied-upon indicator that an individual is an intern and not an employee), and the individual is not guaranteed a position at the end of the internship.

If you have any questions regarding your existing internship program or would like us to review a new internship program before it is implemented, please contact us.

THIS MEMORANDUM IS MEANT TO ASSIST IN GENERAL UNDERSTANDING OF THE CURRENT LAW. IT IS NOT TO BE REGARDED AS LEGAL ADVICE. THOSE WITH PARTICULAR QUESTIONS SHOULD SEEK THE ADVICE OF COUNSEL.

© Lamb & Barnosky, LLP 2014

 

[1] USDOL Fact Sheet #71, available at http://www.dol.gov/whd/regs/compliance/whdfs71.pdf.

[2] NYSDOL Fact Sheet P725, available at http://www.labor.ny.gov/formsdocs/factsheets/pdfs/p725.pdf.

[3] NYSHRL § 296-c, available at http://www.dhr.ny.gov/sites/default/files/pdf/296-c.pdf.