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Labor Department Hits the Brakes on Class Actions by Interns

In yet another blow to Obama-era Department of Labor (DOL) precedent, the DOL recently eliminated its six-part test for determining whether interns can be deemed employees for purposes of the Fair Labor Standards Act (FLSA), replacing it with a seven-factor test that has been endorsed by various federal circuit courts.

In a statement issued January 5, the DOL adopted the seven-factor test that was first promulgated by the Second Circuit in Glatt v. Fox Searchlight Pictures, Inc. Glatt held that courts should use the "primary beneficiary test" to differentiate between employees—who are entitled to certain protections under the FLSA, such as minimum wage and overtime—and interns, who are not. To determine whether the intern or the employer is the "primary beneficiary" of the relationship, courts analyze seven non-exclusive factors:

  • 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.

  • 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.

  • The extent to which the internship is tied to the intern's formal education program by integrated coursework or the receipt of academic credit.

  • The extent to which the internship accommodates the intern's academic commitments by corresponding to the academic calendar.

  • The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.

  • The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.

  • 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.

  • 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. 

Several federal appellate courts had already adopted the Glatt standard to find that interns in various industries were not employees and could not file class actions lawsuits against their employers.

The DOL's previous six-part test presumed that an individual was an employee under the FLSA unless that individual met all criteria of the intern test, including such factors as whether the internship was for the benefit of the intern and whether the employer derived an immediate advantage from the intern's activities. The Glatt test, on the other hand, is case-specific, flexible, and employer-friendly, making it more likely an individual will be deemed an intern not covered by the FLSA.

Nonetheless, employers should not take this change at the DOL as an open invitation to make wholesale changes to internship programs or to merely replace employees with unpaid interns in the hopes of saving on labor costs. Even under the new standard established by the DOL, internship programs still must be educational in nature and the intern must be the party who primarily benefits from the relationship; otherwise employers may face litigation under the FLSA, which could result in liability for civil monetary penalties, back pay, and liquidated damages. Finally, employers should be careful to fully analyze state law in their respective jurisdictions, as states can implement different, and perhaps stricter, standards.

Copyright © by Ballard Spahr LLP

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Louis Chodoff, Labor, Employment, Harassment, Discrimination, Ballard Spahr, Law FIrm
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Louis L. Chodoff handles labor and employment law counseling and litigation associated with harassment, discrimination, wage and hour, whistleblower, wrongful discharge, and restrictive covenant disputes.

Mr. Chodoff litigates in state and federal courts as well as in various administrative agencies such as the New Jersey Department of Labor, New Jersey Division on Civil Rights, New Jersey Office of Administrative Law, Pennsylvania Human Relations Commission, and the Equal Employment Opportunity Commission. He counsels his clients on the employment and labor law implications of...

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Kelley Kindig, Ballard Spahr Law Firm, Labor and Employment Litigation Attorney
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Kelly T. Kindig represents public and private employers in a broad range of employment litigation and counseling and labor matters. She helps clients develop employment policies relating to personnel and employment law issues and advises clients regarding compliance with various employment and labor laws, including Title VII, FMLA, FLSA, ADA, NLRA, and LMRA.

Ms. Kindig also counsels on hiring, firing, and disciplinary practices, as well as restrictive covenant matters. She is experienced with collective action litigation under the FLSA and ADEA and defends employers in employment litigation, including race, sex, and age discrimination, and sexual harassment lawsuits. Ms. Kindig represents employers in collective bargaining negotiations and labor arbitrations, as well as unfair labor practice charges and representation petitions filed with federal and state administrative agencies.

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Jessica Case Watt, Ballard Spahr, Deleware attorney, Commercial Litigation, Mortgage Banking, Securities Enforcement and Corporate Governance Litigation
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Jessica Case Watt is an associate in the Litigation department. Ms. Watt practices complex commercial litigation, with experience in cases involving breach of contract, fraud, and disputes related to lending and finance agreements. She has experience representing commercial lenders in pursuing foreclosure actions to judgment and sale in the State of Delaware.

Ms. Watt practices corporate litigation, including matters of corporate control, corporate governance, statutory and contractual disputes, statutory demands for inspection of corporate books and records, and breach of fiduciary...

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