Summer is upon us. The time of year that many of us are pressured to take on an employee’s son, daughter, niece or nephew “just for the experience” of working in the real world. What could go wrong? The kid gets some experience and you get some free labor. A win-win, right? You might want to slow down.
Many businesses run afoul of federal law by failing to pay minimum wage and overtime pay to unpaid interns whom the law considers to actually be employees. Federal courts have historically used the “primary beneficiary test” to determine whether an unpaid Summer worker was an employee under the Fair Labor Standards Act (FLSA). Under this test, courts examine the economic realities of the worker-employer relationship to determine which party is the primary beneficiary of the relationship. If the unpaid worker is not the primary beneficiary, they should probably be classified as an employee. The following seven factors are generally used to determine the primary beneficiary:
- The extent to which the unpaid worker and the employer clearly agree that there is no expectation of compensation. A promise of compensation, express or implied, suggests that the worker is an employee.
- The extent to which the internship provides training that would be similar to that which the worker would receive 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. An internship that runs beyond the time of beneficial learning looks like “actual work” and an employee-employer relationship.
- 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.
Of course, if an employee is improperly classified as an intern, in addition to FLSA minimum wage and overtime issues (which provide for the recovery of attorneys’ fees and liquidated damages) the employee may also be entitled to ninety day’s penalty wages under Louisiana law. While internships can be a good thing, employers need to enter into the relationship carefully, with a mind towards the elements required and the potential damages if they are not. A written agreement touching on these elements can help establish that the relationship is really that of an intern rather than an employee, but the facts of the relationship will always control.