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How to Pass the Unpaid Intern Test

In today’s tight labor market, employers may be tempted to offer unpaid internships to high school or college students. Before doing so, employers should carefully evaluate whether such interns legitimately qualify as unpaid.

The U.S. Department of Labor (DOL) and the California Division of Labor Standards Enforcement (DLSE) have traditionally used a long-standing six-part test to determine if the internship should be paid or unpaid.

Recently, however, the DOL and federal courts replaced that test with a seven-factor test to determine which party is the “primary beneficiary” of the relationship. If the employer is deemed the “primary beneficiary,” the internship must be paid.

Although the DSLE continues to refer to the six-part test, there is at least one federal case indicating that California will follow DOL’s new criteria.

These seven factors examine the internship’s “economic reality” to determine which party is the primary beneficiary:

1. Does the intern clearly understand there is no expectation of compensation?
2. Does the internship provide training similar to that provided in an educational environment, including clinical training?
3. Is the internship tied to the intern’s formal education program via integrated coursework or academic credit?
4. To what extent does the internship accommodate the intern’s academic commitments by adhering to the academic calendar?
5. Does the internship provide the intern with beneficial learning?
6. To what extent does the intern’s work complement, rather than displace, paid employees’ work while also allowing the intern to obtain significant education benefits?
7. Do the parties understand the intern is not entitled to a paid job at the end of the internship?

The above “primary beneficiary” test is flexible, meaning no one factor determines the outcome. Thus, each situation must be viewed on a case-by-case basis. If the specific circumstances indicate the intern fits the definition of an employee, then he or she must receive at least minimum wage and any overtime, as well as other employee benefits and rights.

Whether interns are paid or unpaid, California employers must protect them against unlawful harassment and discrimination and provide religious belief and religious accommodation rights. It’s also good idea to add all interns to the employer’s workers’ compensation coverage and, if not, to confirm other insurance coverage for injuries that occur on premises or while engaged in internship tasks/projects.

For further assistance, please contact one of our attorneys Tim Bowles, Cindy Bamforth or Helena Kobrin.

Cindy Bamforth

September 26, 2018