As companies begin to think about their summer internship programs, they may want to consider the recent change in the legal landscape surrounding unpaid internships. For good reason, companies have generally been concerned about the legality of unpaid internships, given the hard stance on the issue by the U.S. Department of Labor (DOL) and several class actions brought on behalf of unpaid interns over the last ten years. However, just last month, after the Second Circuit once again refused to adopt the DOL’s position, the DOL reviewed its decision and recognized the “primary beneficiary test,” which takes a much more flexible, totality of the circumstances approach to analyzing whether unpaid interns should be paid as employees. The main question under the primary beneficiary test is whether the benefit the intern gets from the internship, such as skills training and professional development, outweighs any potential benefit the company receives. This move by the DOL follows a line of case law rejecting the DOL’s previous standard as too rigid and often finding that unpaid interns, based on the circumstances of each particular case, are not employees. With this changed landscape in mind, companies may want to revisit the possibility of offering unpaid internships to students. But, before hastily doing so, companies should carefully review and structure their internship program to ensure that the intern is the primary beneficiary in the relationship.

THE COURTS REPEATEDLY FOUND THE DOL’S SIX-FACTOR TEST WAS TOO RIGID -

The federal Fair Labor Standards Act (FLSA) defines an employee as “any individual employed by an employer,” and defines employ as “to suffer or permit to work.” Under federal law, a distinction has developed between interns and trainees on the one hand and employees on the other. If an individual is determined to be an employee, he or she must be compensated for his or her services in accordance with federal and state minimum wage and overtime laws.