Unpaid Internships at NY For-Profit Businesses: a Wish or a Reality

Unpaid internships are a tricky proposition.  You may recall our blog post in 2013 discussing how difficult, if not impossible, it was for New York for-profit employers to offer unpaid internships.  But “the times they are a changing” because the U.S. Department of Labor (“DOL”) lessened the regulatory burden earlier this year.

On January 5, 2018, the DOL announced that it would replace its old six-part analysis with a new “primary beneficiary test” to determine whether an unpaid intern was in fact an employee and thus subject to the Fair Labor Standards Act (“FLSA”) Thanks, in part, to a case involving Fox Searchlight Pictures Inc. in the U.S. Court of Appeals for the Second Circuit, the new test considers seven factors that analyze who the primary beneficiary of the working relationship is. If the analysis of the seven factors shows the primary beneficiary of the employment relationship is the employer, then the intern is designated as an employee and the relationship is subject to minimum wage laws and overtime pay as provided in the FLSA. If, however, the relationship is for the primary benefit of the intern, then the unpaid relationship will not be subject to minimum wage and employee benefit requirements, at least under the primary beneficiary test.

Pursuant to this new primary beneficiary test, businesses that wish to offer an unpaid internship without being subject to the legal requirements involved in an employer-employee relationship should do the following: (1) refrain from making any promise of, or providing, compensation; (2) provide training similar to an educational environment including hands on training; (3) tie the internship to the intern’s formal education, including the receipt of academic credit for the internship; (4) accommodate the intern’s academic calendar and commitments; (5) limit the internship only to a period during which the intern is beneficially learning; (6) provide the intern with academically beneficial work that complements rather than displaces the work of paid employees; and (7) make clear the understanding that the intern is not entitled to a paid job at the conclusion of the internship.

As those who read our prior blog post will know, the above-mentioned factors do not include a previous requirement that the employer does not derive “immediate advantages from the activities of the trainees.” This factor was removed in the new guidance from the DOL for its lack of clear guidance. The rise of appellate court cases, such as Schumann and Benjamin, that determined the DOL’s prior test was “too rigid” and resulted in an “all-or-nothing determination”, encouraged the DOL to ease the employer’s burden and clarify the test regarding unpaid interns.

Despite its potential applicability, this primary beneficiary test only sets forth the minimum standard at the federal level, which means employers still need to consider the applicable state requirements. Unfortunately, the New York State Department of Labor (“NYDOL”) has yet to adopt similar guidance. Instead, the NYDOL maintains its pre-2018 eleven-factor test (as described in detail in our blog post). Therefore, for-profit employers in New York will still have to comply with the prior regulations, despite the new employer-friendly DOL standards.

This article is not legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its authors Andrew Silvia.  Mr. Silvia is an associate at Ross & Shulga PLLC, a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of corporate and securities law.