The Fair Labor Standards Act of 1938 (FLSA) is a federal statute generally designed to protect workers who are unorganized or who lack bargaining power. The protections afforded individuals by the FLSA extend only to “employees.” The question whether one falls under the definition of employee is usually readily apparent. Most workers who are not self-employed or independent contractors are employees. Unpaid interns are a category of workers that historically have performed work related functions for private and public employers outside the strictures of the FLSA, however employers need to carefully monitor their programs related to unpaid internships. The U.S. Department of Labor and the Texas Workforce Commission have jurisdiction to investigate labor-related violations and what may seem like a generous offer of support to a recent college graduate could result in an unlawful practice under the FLSA.

In 1947, the U.S. Supreme Court considered the status of an individual who participated in a training course for prospective railroad yard brakemen. Following the completion of a training course, the participants were gradually allowed to perform actual work under close supervision. The Court ruled that the trainers were not employers as the FLSA was not intended to penalize railroads for providing, free of charge, the same kind of instruction at a place and in a manner which would most greatly benefit the trainees. In today’s economic climate, college graduates compete for limited positions and are often willing to work for no compensation to build their resume or gain a favorable introduction to an employer. How these internships are structured and how closely they are monitored will likely determine the status of the individual under the FLSA. If deemed an employee, the individual will be entitled to minimum compensation, overtime pay, and other benefits. In addition to these costs, employers may be subject to other penalties and enforcement actions under the Act. It’s also important to remember that an employee cannot waive the protections under the FLSA so it is a bad idea to ask any worker to sign a release of their rights.

Recently, the 11th Circuit Court of Appeals issued a ruling that adopted the “primary beneficiary test” which is set forth below.

  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.

Under the primary beneficiary test, courts are seeking to determine whether the employer is simply gaining advantage by having access to free labor or whether the program is focused on giving workers relevant training and experience in their chosen field. If you have any questions related to this or other related matters, contact the firm of Hayes, Berry, White & Vanzant.