Internships and the FLSA.

• Author: Brown, Deborah C.
• Position: Labor and Employment Law

The use of internships, both within and outside the framework of higher education, has grown significantly in recent years. According to one recent study, 67 percent of the college class of 2013 completed at least one internship during college--a 6 percent increase over the prior year. (1) But with that growth has come controversy over the use of interns and their status under the Fair Labor Standards Act (FLSA), (2) a federal law governing minimum wage and overtime for most of the country's workers. At issue is whether and under what conditions an "intern" might meet the legal definition of an "employee" for FLSA purposes, thus, requiring that compensation be paid.

The FLSA is a broad law intended to protect workers that meet the definition of "employee" from abusive and exploitive employment practices. The statute itself, however, is of little help in defining who qualifies as an employee under the law. The FLSA simply defines an employee as "any individual who is employed by an employer," and then goes to provide that "employ" means "to suffer or permit to work." (3) In determining what constitutes work, the U.S. Supreme Court has defined "work" as meaning "physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and his business." (4)

Courts interpreting those terms look to the "economic reality" of the relationship to determine if workers are employees for FLSA purposes. (5) The determination of whether an in dividual is an employee under FLSA is a question of law, and individuals seeking compensation pursuant to the FLSA "bear the initial burden of proving that an employer-employee relationship exists and that the activities in question constitute employment for purposes of the [a]ct." (6) Despite its apparent breadth, the definition of'employee" for FLSA purposes is not as absolute as it might appear. This is because exceptions have developed over the years through various court decisions and regulatory interpretations that exclude certain groups from coverage. It is one such exclusion, for trainees under the FLSA, that is this article's focus.

This article discusses the genesis of the trainee exception and the controversy that has brewed in recent years over its application to modern-day interns. The article also discusses the U.S. Department of Labor (DOL) test for establishing trainee status, and how it has been applied, closing with perspective on the future of internships given these developments.

Portland Terminal

It was in 1947 that the U.S. Supreme Court had one of its first occasions to determine the scope of coverage under the FLSA for trainees. In Walling v. Portland Terminal Company, 330 U.S. 148 (1947), (7) the employer was a railroad yard that provided a one-week training course for individuals hoping to work as brakemen for the company. (8) The training was described as "a course of practical training to prospective yard brakemen" that was given by the railroad company itself. (9) As was explained by the Court, "[t]his training is a necessary requisite to entrusting them with the important work brakemen must do" and, thus, "applicant[s] for such jobs [are] never accepted until [they have] had this preliminary training, the average length of which is seven or eight days." (10)

According to the Court, once an applicant was accepted for training, the applicant was "turned over to a yard crew for instruction." (11) Under supervision, the applicant would "first learn the routine activities by observation," and was then "gradually permitted to do actual work under close scrutiny." (12) However, none of the activities done by these trainees displaced any of the regular employees, who, in fact, did most of the work themselves, and also had to stand immediately by to supervise whatever the trainees did. (13) To that end, the Court found that the "applicant's work [did] not expedite the company business, but [might], and sometimes [did], actually impede and retard it." (14)

Once the course was completed successfully and the trainee certified as competent, he or she was then placed on a list from which the employer could hire in the future. (15) In general, the trainees received no pay or allowance of any kind, but in 1943, the railroad and the "collective bargaining agent, the Brotherhood of Railroad Trainmen, agreed that, for the war period, men who proved their competency and were thereafter listed as accepted and available for work as brakemen, should be given a retroactive allowance of $4 per day for their training period." (16) Other than this contingent allowance, the Court stated that "[t]he findings do not indicate that the railroad ever undertook to pay, or the trainees ever expected to receive, any remuneration for the training period other than the contingent allowance." (17)

Based on these facts, the Supreme Court rejected a claim that these trainees were covered as employees under the FLSA. Despite the broad definition of what it means for someone to be employed, the Supreme Court instead explained:

The definition "suffer or permit to work" was obviously not intended to stamp all persons as employees who, without any express or implied compensation agreement, might work for their own advantage on the premises of another. Otherwise, all students would be employees of the school or college they attended, and as such entitled to receive minimum wages. So also, such a construction would sweep under the [a]ct each person who, without promise or expectation of compensation, but solely for his personal purpose or pleasure, worked in activities carried on by other persons either for their pleasure or profit. But there is no indication from the legislation now before us that Congress intended to outlaw such relationships as these. (18)

More than 50 years later, a confluence of events combined to bring this issue to the forefront. One such event was the publication of DOL's Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act, discussed in more detail herein. (19) Before doing so, it should first be explained that the DOL Fact Sheet was issued at a time when public debate was brewing over unpaid internships. At the national level, a perception existed by some that the use of unpaid internships had grown substantially as the economy had declined, and that large employers were using internships in an exploitive manner so as to avoid paying wages during lean times. (20) Student complaints over unpaid internships and the role of colleges in supporting them began to grow. (21) A group of college presidents urged caution in the wake of the DOL Fact Sheet for fear that DOL's "enforcement actions and public statements could significantly erode employers' willingness to provide valuable and sought-after opportunities for American college students." (22) It also had been argued that unpaid internships necessarily limited participation to only students with the financial resources to work for free and pay their own living expenses, effectively excluding qualified lower-income candidates from participating. (23) Ross Perlin's book Intern Nation: How to Earn Nothing and Learn Little in the Brave New Economy, (24) also fueled the debate over perceived abuses in the internship industry.

All of this might have meant little but for Glatt v. Fox Searchlight Pictures, 293 F.R.D 516 (S.D.N.Y. 2013), appeal filed, Case No. 13-4478-CV(L), 13-4481-CV(CON) (2d Cir. 2013), a widely publicized intern decision involving Fox Searchlight Pictures and the feature film Black Swan. In Glatt, two interns were found to meet the definition of "employee" under the FLSA. (25) In the wake of Glatt, a wave of litigation and settlements focused largely on media, entertainment, and publishing have been reported and are being tracked; (26) websites have sprung up seeking plaintiffs to bring intern claims; (27) and the issue continues to receive scrutiny by various industry groups. (28) Against this backdrop, we will examine the DOL Fact Sheet's test and its application.

The DOL Six-factor Test and its Application

In April 2010, DOL published a list of six items (six-factor test) that would need to be met for an individual to be excluded from coverage in an internship. (29) Those six factors are:

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

2. The internship experience is for the benefit of the intern;

3. The intern does not displace regular employees, but works under direct supervision of existing staff;

4. The employer that provides the training derives no immediate advantage of 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. (30)

The six-factor test itself, derived from...