Businessman carrying lots of files

It is almost an axiom that the Fair Labor Standards Act, 29 U.S.C. §§ 201 et seq., passed in 1938, is out of date. Despite modest tweaks since the time it was enacted, a particularly dark time in the Great Depression, it is based on an economy that vanished decades ago. This reality pops up from time to time in case law in which courts express frustration or worse over the statute, its regulations, or its application to new or emerging industries, as recognized in a recent Eleventh Circuit decision involving interns.

Nearly 70 years ago in Walling v. Portland Terminal Co., 330 U.S. 148 (1947), the Supreme Court addressed the issue of interns, a term it never even used then. That case concerned a weeklong training program for would-be railway yard brakemen and whether the participants were FLSA “employees.” The Supreme Court in that case developed a test that focused on whether the individual trainee or the railroad was the “primary beneficiary” of his services during that time. The Supreme Court found that given the nature of the training program, the primary beneficiaries were the individuals, who picked up knowledge and training, and thus they were not “employees” under the FLSA. 

The Department of Labor later expanded the Portland Terminal “primary benefit” holding to a six-part test. We have previously blogged other cases relating to this test. In its Fact Sheet 71, the Department of Labor lists those factors as:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

So, do factors derived from a Supreme Court case old enough to collect Social Security and arising out of a seven- or eight-day hands-on course for railway brakemen apply to modern internships? That was pretty much the issue in Schumann v. Collier Anesthesia, Case No. 14-13169 (11th Cir. Sept. 11, 2015).

The Schumann case involved 25 registered nurse anesthetists seeking master’s degrees from a for-profit college with connections to private anesthesia practices. Under state law, the students needed to participate in a clinical curriculum, essentially an internship, to receive their degree. The students generally did so at the school’s clinical sites, often working, they claimed, the equivalent of a full-time job. Both sides presented evidence suggesting that the other benefited (or did not benefit) from the students’ services. The district court concluded, under the DOL’s six-part test, that the students were not FLSA employees.

The Eleventh Circuit did not so much decide the case as toss out the six-part test and remand the case for the district court to reconsider it on a seven-part test. It allowed no deference to the DOL test on the grounds that it was interpreting a Supreme Court case, and an old case at that, and not the statute. While the court did not say so, there is also the issue that the FOH is not a regulation and should not have been given deference in any case.

The court instead followed the lead of the Second Circuit and adopted its own seven-factor test to determine employment status:

  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.

The court took care NOT to opine as to whether the test had been met or not, and remanded the case for further consideration.

The decision in Schumann highlights not only the perils of unpaid internships, particularly in the for-profit sector, but also continuing issues with the application of the FLSA’s antiquated framework in a very different economy than the one that existed before the last World War. Internships are an important means for newer workers to gain experience, and employers should not have to guess what standard will apply to their efforts to provide such opportunities, particularly with potential class-wide liability on the line.

The bottom line: The courts and the U.S. Department of Labor continue to grapple with the appropriate tests for unpaid interns, leaving both employers and prospective interns in limbo.