As high school, college, and professional students know all too well, unpaid internships are a harsh reality of getting “real world” experience[1] that is increasingly required by employers.[2] Unpaid internships are so commonplace that it may feel out of place to question their legality. However, when one thinks about potential legal issues, it will not take them long to encounter some ordinary employment and labor law issues, including the Fair Labor Standards Act’s (hereinafter “FLSA”) minimum wage[3] and overtime regulations.[4]
Additionally, unpaid internships have been under heat for over ten years, with critics arguing unpaid internships perpetuate inequities based on race[5] and affluence.[6] Congresswoman Alexandria Ocasio-Cortez solely hires interns who her office can pay, reasoning that it creates a more diverse workforce and the interns can perform at higher levels because they are not working other jobs to pay their expenses.[7] Likewise, experts note that unpaid internships can increase unemployment rates by increasing the supply of free labor and “displac[ing] full-time workers,” which “further contribut[es] to [a] weak economy.”[8] Some critics argue that unpaid internships are only problematic in certain situations, such as in law firms[9] and for-profit companies.[10] All of these critics’ arguments have merit; it has been estimated that unpaid internships save companies around $600 million per year that would otherwise be paid to compensated employees.[11] However, there are plenty of commentators who argue that the positive aspects of unpaid internships keep them in good standing, which include presenting opportunities that would otherwise not be presented, learning how to work in a professional setting, and getting out-of-classroom experience.[12]
Nevertheless, unpaid internships persist. Because of the high levels of scrutiny on unpaid internships, the Department of Labor has issued guidance for employers seeking to hire unpaid internships legally.[13] While this guidance from the Department of Labor is useful, employers must also be aware of unpaid internships’ ever-changing landscape through the judiciary. This article seeks to shed light on the various standards employers must abide by when offering unpaid internships.
The FLSA established minimum wage, overtime requirements, child labor laws, and record keeping requirements when it was enacted in 1938.[14] Before the FLSA was signed by President Franklin D. Roosevelt in 1938, American employees were subjected to oftentimes grotesque working conditions, such as working 18 hours per day, seven days per week with miniscule wages and no breaks.[15] Now, all employees must be paid a minimum wage, which is $7.25 under the FLSA,[16] and employers cannot require employees to work more than 40 hours per week without paying them one and one-half times their normal pay rate.[17] Through its mandated minimum wage, the FLSA prohibits employees from working at for-profit companies without pay.[18] The FLSA does not, however, prohibit employees from working uncompensated for state or government agencies.[19] Like most other legal rules, there are exceptions, with the largest being the unpaid intern.[20]
The majority of United States employees are covered under the FLSA.[21] Those who are not covered include the small number of private-sector employees who engage in “purely local, isolated activity.”[22] Yet, “[a]ny regular contact with [interstate] commerce, no matter how small, will result in coverage” under the FLSA.[23] All employees in the public sector are covered under the FLSA.[24] Clearly, the number of employees covered by the FLSA is immense.
The Wage and Hour Division of the Department of Labor is tasked with enforcing the FLSA’s minimum wage and overtime provisions.[25] The Secretary of Labor, as the head of the Department of Labor, has also been given FLSA enforcement power by Congress.[26] However, the vast majority of FLSA problems are solved through the courts.[27] Some commentators argue that the Department of Labor fails to utilize its full authority under the FLSA, especially with regard to unpaid internships, harming future interns and equal opportunity.[28]
Notably, the FLSA only covers “employees.”[29] However, the FLSA is not helpful in determining who is truly an “employee.” Congress provided a circulatory definition of employee in the FLSA; the definition of employee under the FLSA is “any individual employed by an employer.”[30] Ostensibly, this broad definition would cover unpaid internships; unpaid interns are technically “employed by an employer.” The question of whether an unpaid intern is an “employee” as defined by the FLSA has not yet been decided by the Supreme Court. However, it has decided that unpaid “trainees” are not “employees” in certain situations and, thus, are not covered by the FLSA’s minimum wage requirements.[31] In this case, Walling v. Portland Terminal Co., the Court reasoned that the trainees were not employees under the FLSA’s definition of employee because the employer did not receive an “‘immediate advantage’ from any work done by them.”[32]
In Rutherford Food Corp. v. McComb,[33] the Court created a test to determine whether an unpaid worker, which is different than an unpaid intern in the eyes of the law,[34] was truly an “employee” under the FLSA: the economic realities test.[35] This test requires courts to look at the totality of circumstances of the relationship between the proposed employer and employee.[36] The court looks to whether a worker “followed the usual path of an employee” when deciding whether she is an employee as defined under the FLSA.[37]
The economic realities test was drawn out further in Tony & Susan Alamo Foundation v. Secretary of Labor.[38] Ex-prisoners and survivors of substance abuse worked for a religious foundation without monetary payment.[39] However, the workers received compensation in the form of food, shelter, clothing, and other benefits.[40] The workers expected to receive “wages in [a] form,” even though it was not cash, and they were economically reliant on these wages.[41] Because of this, the Supreme Court held that the workers were employees under the FLSA, and their employer was required to provide them with a minimum wage and overtime pay in accordance with the FLSA.[42] The Court gave little weight to the workers labeling themselves as “volunteers” rather than employees and noted that a compensation agreement may be either “implied” or “express.”[43]
Although a good starting point, these Supreme Court cases only deal with unpaid workers labeled “trainees,” “volunteers,” and “unpaid workers” rather than unpaid interns. In the following section, the various tests for whether an unpaid internship complies with the FLSA will be discussed.
Litigation challenging unpaid internships has increased in recent years.[44] Because of this, various federal circuit courts have created their own tests to determine if someone is an unpaid intern in compliance with the FLSA.[45] Additionally, the Wage and Hour Division of the Department of Labor has provided its own guidelines for determining whether an unpaid internship complies with the FLSA.[46]
A. The Primary Beneficiary Test
Fact Sheet #71 was created and is revised by the Wage and Hour Division of the Department of Labor.[47] The primary beneficiary test found in Fact Sheet #71 was amended shortly after the Ninth Circuit decided Benjamin v. B& H Education, Inc.[48 Its purpose is to “provide[] general information to help determine whether interns and students working for ‘for-profit’ employers are entitled to minimum wages and overtime pay under the [FLSA].”[49] It lists a seven-factor primary beneficiary test, which it gets from various federal court decisions regarding unpaid internships, to determine whether an intern is an employee as defined by the FLSA:
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.[50]
The fact sheet notes that no one factor is dispositive, and the determination of whether a student is an intern depends substantially on the facts of each case.[51] It also warns employers that they may be on the hook for minimum wage and overtime pay if an intern is found to be an employee under the FLSA’s definition.[52]
Clearly, this test focuses on the educational aspects of the worker’s internship. To avoid paying interns, employers could coordinate with an educational institution to create internship programs.[53] While this may seem like the employer is cheating the system, a student intern can get valuable, practical experience in the field rather than in a classroom.[54] Also, if more federal circuit courts use this test, companies would feel more comfortable creating these internships and, thus, more students could learn by doing rather than seeing and hearing.[55] Fact Sheet #71 cites four federal circuits that have adopted the primary beneficiary test for unpaid internships.[56] This test is a good compromise of the detriments and benefits of unpaid internships – it is still unpaid, and therefore contributing to wealth inequality, but it is inherently tied to educational institutions, limiting who employers can hire for free.
B. Donovan v. American Airlines, Inc.[57]
The Fifth Circuit applied an “all-or-nothing” version of the Department of Labor’s Fact Sheet #71.[58] While the court looked at all of the facts and circumstances relating to the case, it used a previous version of Fact Sheet #71 as a checklist rather than a guide; if one element was missing, the unpaid worker would not be considered an employee as defined by the FLSA and would not receive the FLSA’s minimum wage and overtime pay benefits.[59] Because of this strict interpretation of Fact Sheet #71, the workers in Donovan were labeled as “trainees” and not employees under the FLSA and did not receive the FLSA’s minimum wage and overtime benefits.[60] Although the Wage and Hour Division of the Department of Labor has updated Fact Sheet #71’s language since this decision,[61] the Fifth Circuit has not overruled its decision in Donovan.
Whether an intern is an employee under the FLSA has yet to be decided by the Supreme Court. Like other cases determining whether an unpaid worker is an employee as defined by the FLSA, the Supreme Court will likely rely on the specific facts of the case to make its determination. The Supreme Court has different routes it can take when analyzing an unpaid internship case, but it will likely apply a version of the primary beneficiary test. The most likely version of the primary beneficiary test it will apply is the totality of the circumstances primary beneficiary test adopted by four federal circuit courts and the Wage and Hour Division of the Department of Labor in Fact Sheet #71.
[1] See, e.g., College of Arts and Letters, Student Opportunities and Resources, University of Notre Dame, https://al.nd.edu/advising/student-opportunities-and-resources/ (“Gain real-world experience in a variety of industries with a summer internship.”) (emphasis added) (last visited Mar. 29, 2021).
[2] See, e.g., Stuart Esrock, Employers Advise Students to get Real-World Experience Through Internships, University of Louisville, https://louisville.edu/career/news/employers-advise-to-get-real-world-experience (last visited Mar. 29, 2021).
[3] Fair Labor Standards Act, 29 U.S.C.S. § 206 (2016).
[5] Nicolas Pologeorgis, The Impact Unpaid Internships Have on the Labor Market, Investopedia (Oct. 8, 2012), https://www.investopedia.com/articles/economics/12/impact-of-unpaid-internships.asp
Unpaid internships can exacerbate socioeconomic and racial inequality since they close off opportunities to applicants who don’t come from affluent families and can’t afford to work for free. The racial wealth gap means that Black and Latinx families may disproportionately be unable to subsidize their child’s living and college expenses in order for them to take an unpaid internship.
The reality is that unpaid internships are a great way of giving the children of affluence a leg up in life. If they really do help young people get permanent jobs in desirable fields, then the current internship system has the effect, however unintended, of reserving this advantage mainly for well-to-do families — families that happen to be disproportionately white.
See also Pavithra Mohan, How unpaid internships hurt all workers and worsen income inequality, Fast Company (Aug. 21, 2019), https://www.fastcompany.com/90388911/how-the-unpaid-intern-economy-feeds-income-inequality (“Unpaid internships have long been criticized for favoring privileged students while others who face down a record-high $1.6 trillion in student loan debt are expected to work for free, essentially setting up income inequality before their careers even begin.”).
[8] Pologeorgis, supra note 5.
[9] Eric M. Fink, No Money, Mo’ Problems: Why Unpaid Law Firm Internships Are Illegal and Unethical, 47 U.S.F. L. Rev. 435 (2013).
[10] Charles Penrod, The Party’s Over: It Is Time to End Unpaid Internships at For-Profit Organizations, 19 W. Mich. Cooley J. Prac. & Clinical L. 1 (2017).
[11] Melissa Hart, Internships As Invisible Labor, 18 Emp. Rts. & Emp. Pol’y J. 141, 143 (2014).
[13] Wage & Hour Div., U.S. Dep’t of Labor, Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act (2018), https://www.dol.gov/agencies/whd/fact-sheets/71-flsa-internships (hereinafter “Fact Sheet #71”).
[14] Fair Labor Standards Act, 29 U.S.C.S. §§ 206-07 (2016).
[15] See, e.g., Peter Cole, The Law That Changed the American Workplace, TIME (Jun. 24, 2016, 9:30 AM), https://time.com/4376857/flsa-history/.
[20] See infra Section III for a discussion on varying standards applied to the validity of unpaid internships.
[22] Paul Budd, All Work and No Pay: Establishing the Standard for When Legal, Unpaid Internships Become Illegal, Unpaid Labor, 63 U. Kan. L. Rev. 451, 455 (2015).
[23] Williams v. Henagan, 595 F.3d 610, 621 (5th Cir. 2010) (quotingSobrinio v. Med. Ctr. Visitor’s Lodge, Inc., 474 F.3d 828, 829 (5th Cir. 2007)).
[26] 29 U.S.C.S. §§ 216-17. The Secretary of Labor can file suit on behalf of employees wronged by their employers under the FLSA, seek injunctive relief to prevent violations of the FLSA, and impose civil penalties on employers who become repeat offenders of the FLSA.
[27] Andrew Mark Bennett, Unpaid Internships & The Department of Labor: The Impact of Underenforcement of the Fair Labor Standards Act on Equal Opportunity, 11 U. Md. L.J. Race Relig. Gender & Class 293 (2011).
[31] Walling v. Portland Terminal Co., 330 U.S. 148 (1947). The trainees in this case took an eight-day practical training offered by a railroad company to learn the duties of a yard brakeman. The trainees brought suit, arguing that they were employees under the FLSA and entitled to minimum wage for the eight days they worked.
[33] 331 U.S. 722 (1947).
[34] See discussion infra Section III.
[38] 471 U.S. 290 (1985).
[43] Id. (quotingPortland Terminal, 330 U.S. at 152.)
[44] David C. Yamada, The Legal and Social Movement Against Unpaid Internships, 8 Ne. U. L.J. 357, 390 (2016) (“In the immediate aftermath of the Glatt decision [in 2013] came a marked increase in filings of legal claims for unpaid wages by former interns.”) (citation omitted).
[45] See Budd, supra note 22, at 465.
[46] See Fact Sheet #71, supra note 13.
[48] Morgan Knott, Intern or Employee in Disguise? The Rise of the Unpaid Internship and the Primary Beneficiary Test Benjamin v. B&H Education, Inc., 887 F.3d 1139 (9th Cir. 2017), 84 Mo. L. Rev. 177, 192 (2019). The Ninth Circuit rejected the former version of Fact Sheet #71, instead holding that no single factor is dispositive when determining whether an unpaid internship complies with the FLSA.
[53] Knott, supra note 48, at 191.
[56] Fact Sheet #71, supra note 13 (citing the Second, Sixth, Ninth and Eleventh Circuits that have adopted the primary beneficiary test used by the Wage and Hour Division of the Department of Labor in Fact Sheet #71).
[57] 686 F.2d 267 (5th Cir. 1982).
[59] Budd, supra note 22, at 469. Note that Fact Sheet #71, at the time, had slight variations to its wording compared to the current Fact Sheet #71. Previously, it listed elements that must be met in order for the internship to be viable under the FLSA. Now, it lists factors to be considered when determining whether the unpaid internship complies with the FLSA.
[60] Donovan, 686 F.2d at 273.
[61] Budd, supra note 22, at 469. At the time, the language of Fact Sheet #71 stated “[i]f all the factors listed above are met, an employment relationship does not exist under the FLSA.”
