In 2013, the Department of Labor (DOL) sucked the life out of most unpaid internships when it released a six-part test for determining when an unpaid internship could be deemed legitimate. The test was hard to meet, and many employers stopped offering unpaid internships out of fear the interns would be reclassified as employees.  Additionally, there are an increasing number of class action lawsuits filed by unpaid interns alleging that they performed the work of employees and were therefore entitled to receive minimum wage and overtime pay.

On January 30, 2015, in Glatt v. Fox Searchlight Pictures, Inc., the Second Circuit Court of Appeals rejected the DOL test as too rigid. Instead, the Court ruled that the proper test is “whether the intern or the employer is the primary beneficiary of the relationship.” This much simpler test is intended to allow the court “flexibility to examine the economic reality as it exists between the intern and the employer.”

The Court listed seven factors that should typically be considered in making this determination:

  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.

These factors are intended to be part of a balancing test. Other factors can be considered, and not every factor must point in the same direction.

The Bottom Line: This case may signal an increased willingness by courts to take a more common-sense approach toward unpaid internships, despite contrary guidance issued by the DOL.