Employment 101: Unpaid Interns and the FLSA

We have previously written about the federal law’s minimum wage caveats for tipped employees. The Fair Labor Standards Act (“FLSA”) also has an exception for interns. As you likely know, in many situations interns are entitled to no wages at all. Unpaid internships, after all, are a staple of congressional offices.

However, employers and employees (and interns) should be mindful that the law is not entirely clear as to when this exception applies, and misclassification can present serious consequences.

When Is an Intern Entitled to Minimum Wage?

The easy answer to this is never. An “employee” is entitled to minimum wage but an “intern” is not. However, determining whether an individual is an employee or intern is significantly muddier waters. Recently, though, the Department of Labor has provided a little clarity to the issue. The Department issued guidance endorsing a seven-factor test for determining intern status.  This test has been utilized by a number of federal appellate courts, but the Department had continued to follow a different six-part test.

The Seven-Factor Test

The seven factor test recognized by the courts and now the Department of Labor is meant to determine the “economic reality” of an individual’s relationship with the employer to determine who is the primary beneficiary of the relationship. The non-exhaustive factors are:

(1) a shared understanding regarding compensation or lack thereof;

(2) whether training provided is similar to that in an education environment;

(3) connection between internship and education program;

(4) internships accommodation of academic commitments;

(5) limited duration;

(6) whether the intern’s work complements or displaces the work of other employees; and

(7) whether an intern is entitled to paid work at the conclusion of the internship.

These factors are not an exact science, which provides judges with some latitude in making a decision. Nevertheless, these factors will guide the judge’s decision and must be considered in determining the classification of interns. Remember that failure to pay an employee wages because he or she has been misclassified as an intern can result a substantial amount of liability (including back pay for every hour worked, attorney’s fees and liquidated dames).

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Brad is an attorney in the firm’s Northwest Arkansas Office. He practices in employment law, civil litigation, and family law. You can reach our NWA office at 479-802-6560.