FLSA Permits Unpaid Internships Even If Employers Benefit, 11th Cir. Confirms

A forensic photography intern working with Miami-Dade County was not an employee entitled to pay, the 11th U.S. Circuit Court of Appeals held (McKay v. Miami-Dade County, No. 20-14044 (11th Cir., June 9, 2022)). While the employer received some benefit from her work, she was the primary beneficiary of the internship, the court said.

The photography intern sued the county after her internship concluded, alleging she performed actual work and was therefore an employee entitled to minimum wage and overtime under the Fair Labor Standards Act. The county abused the internship program to save on labor costs, she said.

A district court dismissed her claim, applying 11th Circuit precedent to determine that she was the primary beneficiary of the internship. On appeal, the 11th Circuit agreed: “we agree with the District Court that there is no material question of fact about whether McKay was an intern — she was.”

The FLSA requires that employers pay each employee minimum wage and overtime unless the individual is eligible for an exemption. To determine whether an individual — such as an intern — qualifies as an “employee,” the U.S. Department of Labor and courts often apply the primary beneficiary test.

The test includes seven factors, according to DOL:

  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.

In McKay, the courts determined that those factors weighed in the employer’s favor, even at the lawsuit’s summary judgment stage, which requires that evidence be viewed in the light most favorable to the employee. The intern said she pursued the internship instead of formal education, illustrating that the program may provide training similar to what would be offered in an educational setting. And while some of her work may have displaced that of others, “there is nothing inherently wrong with an employer’s benefiting from an internship that also plainly benefits the interns,” the appeals court said, quoting an earlier 11th Circuit opinion.

Employers have long used unpaid internships for a variety of reasons, but management-side attorneys in recent years began to urge caution with such programs. DOL’s adoption of the primary beneficiary test in 2018, however, amounted to a loosening of its rules.

Several years later, the results still remain to be seen, perhaps due in part to the coronavirus pandemic. In fact, given the current labor market, and the less-than-fulsome return to in-person work, it may actually be easier for applicants to find a paying job than an unpaid internship, which provides an employer flexibility to utilize the labor in a manner beneficial to it.

Internship use in general is down, too; employers have access to a large candidate pool of experienced workers who can provide a more immediate benefit to their organization than paid interns. Moreover, the heightened fear and unpredictability of the future seems to have negatively impacted this sort of historical succession planning for junior job seekers.

For those forging ahead with unpaid intern programs, the primary beneficiary test certainly offers more flexibility than prior tests by looking at the totality of the circumstances as opposed to strictly adhering to one or more all or nothing” factors. However, some states may use different tests with which employers must ensure their intern programs comply.

For the risk-averse, some have recommended that employers – especially private, for-profit employers – consider treating interns as employees. Assuming all applicable laws and regulations are reviewed, an employer could avoid some wage and hour liability issues by paying interns minimum wage and overtime.

Pay may be crucial not only from a wage and hour compliance perspective but also from a diversity and inclusion perspective. Non-White workers and women are overrepresented in unpaid internships, research shows; this means that when internships are unpaid, employers limit their talent pools to those with access to certain resources.

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