Three clients in the last two weeks have asked me about internships. It must be the season for people to look for those opportunities. The key question is always the same: Do we have to pay them? A recent appeals court decision provides some guidance, but no definitive answer.
The U.S. Court of Appeals for the Second Circuit ruled that six unpaid interns were not “employees” for purposes of pay requirements. The court used the flexible “primary beneficiary test” in reaching this conclusion. This test also has been used in various forms recently by other Federal Appeals Courts, including, notably, the Fourth Circuit which covers Virginia, Maryland, West Virginia, North Carolina and South Carolina.
In this case, a group of interns filed a collective action against the company that provided the internship opportunities claiming it failed to pay wages as required. After summary judgment in favor of the company in the District Court, the interns appealed. The Appeals Court considered whether:
- the interns expected payment;
- the training was consistent with what the interns would have learned in an educational environment;
- the internship was for academic credit or was at least part of the intern’s education process;
- the internship period was consistent with an academic calendar;
- the internship duration was for a valuable period;
- the interns displaced paid employees; and
- the interns expected an offer of paid employment following the internship.
The Court said the key point was whether the employer or the intern was the primary beneficiary of the relationship. It noted that “[n]o one factor is dispositive and every factor need not point in the same direction to conclude that the intern is not an employee.” The Court reached this conclusion even though it found that some of the interns did not receive academic credit for their internships, some performed work unconnected to their academic programs, and most performed some tasks that a company employee otherwise would perform.
The court emphasized the “case-by-case” nature of the primary beneficiary test. However, this emphasis provides little clarity for employers. There is no formula to apply. The concern for employers remains the same — do they pay interns or not? The closer an employer can get to demonstrating the factors listed, the better the argument. But, a case-by-case evaluation means that claims will continue to be filed.