On Friday, January 5, 2018, the United States Department of Labor (“DOL”) issued a statement that it will no longer follow its six-factor test in determining whether an individual is a non-employee intern (rather than an employee) under the Fair Labor Standards Act (“FLSA”), and instead will apply a broader analysis commonly referred to as the “primary beneficiary” test.  Four federal circuit courts of appeal, including most recently, the Ninth Circuit, have already adopted this test. 

Under the DOL’s prior test, a for-profit employer had to meet all of the following six factors to properly classify an individual as an intern and thereby avoid the FLSA’s minimum wage and overtime compensation requirements as to that individual:

1. The internship, even though it includes actual operation of the facilities of the employer, must be similar to training which would be given in an educational environment;

2. The internship experience is for the benefit of the intern and not the employer;

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.

Many courts believed this test was too rigid, particularly the requirement that the employer derive no immediate advantage from the intern’s activities.  The Second, Sixth, Ninth, and Eleventh Circuits have held that the six-factor test fails to take into account economic realities, and that the intern analysis should focus on who is the primary beneficiary of the relationship – the employer, or the purported intern.

In conjunction with its statement announcing its new policy, the DOL issued a Fact Sheet that articulates seven factors to be considered under the primary beneficiary test.  However, none of these factors are mandatory; rather the DOL states each situation must be determined on a case-by-case basis.

The DOL indicated it would be updating its field guidelines to reflect the new test, which will allow DOL investigators to analyze each situation “holistically.”  The DOL’s policy is effective immediately, however, employers should note that this agency guidance does not have the force of law, and some jurisdictions where the federal courts that have not formally adopted the primary beneficiary test may vary in their interpretations of the intern exception to the FLSA.