Interns – The Law Has Changed

With high schools and colleges nearing the end of this academic year, I thought it would be a good time to update my readers on the changes that have occurred in how the U.S. Department of Labor (“USDOL”) looks at the question of whether an intern must be paid for the time they spend performing duties for an employer.  As noted in my post last year on this subject, that is the issue that poses the biggest risk for insurance agencies and other businesses that want to hire interns.   In January of this year, the USDOL abandoned its previous approach to this issue in favor of what it calls the “primary beneficiary test. ”   That test focuses on the “economic reality” of each particular internship situation in determining whether the primary beneficiary of the relationship is the employer, in which case the intern must be paid at least the federal minimum wage for each hour worked, or the intern, in which case no compensation need be paid to the intern for the time worked.  This test was developed by the federal courts and was recently adopted by the 11th Circuit Court of Appeals whose decisions govern Georgia employers.

In the updated Fact Sheet released by the USDOL in January of this year, the seven factors to be considered in making the above determination are:

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.

As a quick review of the above criteria reveals, the new test is a balancing one in which no one factor is determinative.  That is the major change from the approach previously used by the USDOL.  Under that approach, if the employer derived any significant benefit from the services provided by the intern, the intern was an employee.  Under the new approach, the fact that an employer benefits from the services provided by an intern does not automatically make the intern an employee.  Instead, in the words of the 11th Circuit Court of Appeals, an employer would have to have “unfairly taken advantage of or otherwise abused” the intern relationship before the intern would be considered an employee.

A review of the above criteria also reveals that the more closely tied to a “formal education program” being undertaken by the intern the duties being performed for the employer are, the more likely the relationship will be considered an intern, not an employee, one.  Where the intern is not involved in any related “formal education program”, the agency should strive to structure the relationship between it and the intern as if that was the case, i.e., provide the intern with learning opportunities of the same type as found in such programs related to the insurance business.

The rules regarding the employment of persons under 18 years of age have not changed (Click here for a fact sheet from the USDOL on this subject and here for a summary of the restrictions imposed by federal and state law from the Georgia Department of Labor).

The new rules adopted by the USDOL have made it less risky for agencies to hire unpaid or less than minimum wage paid interns to give them a taste of the insurance business.  They should be taken advantage of to help generate more interest in careers in insurance among the younger generation.