eLABORate: Federal Appeals Courts Reconsider Whether Student Interns Are "Employees" Under Fair Labor Standards Act

September 16, 2015

On September 11, the U.S. Court of Appeals for the Eleventh Circuit issued a decision which is likely the most recent development of the law surrounding whether student interns or trainees should be considered “employees” under the Fair Labor Standards Act (“FLSA”).

In Schumann v. Collier Anesthesia, P.A., students who were participating in a clinical internship program which was required for them to become licensed registered nurse anesthetists filed suit against the for-profit college and the anesthesiology clinic where they performed their internship duties. The students argued that they were “employees” for purposes of the FLSA and that the defendants had unlawfully failed to compensate them with wages and overtime pay. The district court granted summary judgment in favor of the defendants, ruling that the students were not “employees” under the FLSA and that they were not entitled to a minimum wage or overtime pay. On appeal, the students argued that the district court improperly declined to apply the six-factor test issued in guidance by the U.S. Department of Labor’s (“DOL”) Wage and Hour Division.

The FLSA provides broad definitions with respect to who qualifies as an employee which have been described as circular and not precise. In 1947, the U.S. Supreme Court weighed in on whether trainees are “employees” under the FLSA in Walling v. Portland Terminal Co., 330 U.S. 148. The case involved a railroad company which offered a practical training course for prospective railroad-yard brakemen in a seven-or-eight-day training program. The Supreme Court concluded that “[t]he Fair Labor Standards Act was not intended to penalize railroads for providing, free of charge, the same kind of instruction at a place and in a manner which would most greatly benefit the trainees.”  Courts that have reviewed cases involving students and trainees have referred to this language and focused on whether the program “most greatly benefit[ed]” the trainees, a process which has become known as the “primary beneficiary” test. The DOL’s Wage and Hour Division provides a six-factor test which it claims is derived from Portland Terminal to evaluate whether a student trainee qualifies as an employee under the FLSA.

In Schumann, however, the Eleventh Circuit determined the DOL’s test simply mirrored the Supreme Court’s application of the FLSA to the facts in Portland Terminal and stated that “[w]ith all due respect to the Department of Labor, it has no more expertise in construing a Supreme Court case than does the judiciary.” While the students in Schumann argued that the district court should have applied the DOL’s test and required that all of its factors be met for a trainee not to qualify as an employee under the FLSA, some appeals courts have not found the test persuasive. In Glatt v. Fox Searchlight Pictures, Inc., 791 F.3d 376 (2d Cir. 2015), the Second Circuit found that the DOL’s test was “too rigid” and attempted unsuccessfully to apply Portland Terminal’s particular facts to all workplaces. The Eleventh Circuit followed the Second Circuit’s view of the DOL guidance and the application of Portland Terminal to modern internship cases.

The Eleventh Circuit held that, while it followed Portland Terminal’s “primary beneficiary test,” it recognized that the “[l]onger-term, intensive modern internships that are required to obtain academic degrees and professional certification and licensure in a field are just too different” from the training class in Portland Terminal, a case decided almost seventy years ago which did not contemplate “the role of internships in today’s economy.” The court recognized that these training programs come with a great deal of responsibility and “serious potential costs.” “We cannot realistically expect anesthesiology practices to expose themselves to these costs by providing students with the opportunity to participate in 550 cases each, without receiving some type of benefit from the arrangement.”

The court determined that the critical consideration involved ensuring balance in a relationship where both the intern and the employer may obtain significant benefits. Ultimately, the court reasoned that an evaluation of an internship program should “focus on the benefits to the student while still considering whether the manner in which the employer implements the internship program takes unfair advantage of or is otherwise abusive toward the student.” According to the court, this lens “allows student internships to accomplish their important goals” and still accounts for the interest in protecting vulnerable workers with very limited bargaining power which led to the enactment of the FLSA. The Eleventh Circuit followed the Second Circuit’s seven-factor test in student intern/trainee cases, which refines the considerations in Portland Terminal:

  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.

None of the factors is dispositive, and courts must weigh and balance all of the circumstances. Ultimately, the Eleventh Circuit commented that a balanced review of all of these factors may not result in an “all-or-nothing” determination, suggesting that for work that fell properly within the bounds of the academic internship, students could not be considered “employees” under the FLSA. For work that fell outside of those boundaries and for which the employer then became the primary beneficiary (e.g. an arrangement in which the intern had to paint the employer’s home to complete the internship), a student may qualify as an “employee” under the FLSA.

These appeals court decisions may have significant implications for how organizations that provide internship and training opportunities should structure their programs for purposes of application of the FLSA.