OFCCP Week In Review: January 8, 2018

The “primary beneficiary” test causes the courts to ask the question under the Fair Labor Standards Act (FLSA) whether it is the unpaid Interns or (as in the Ninth Circuit case) whether the at-issue schools of cosmetology and hair design are the “primary” beneficiaries of the “menial and unsupervised” work students complained they were required to perform as part of their unpaid intern training. The students claimed, of course, that the menial and unsupervised clean-up activities they performed was not related to their education and was really “work” for which the schools should compensate them pursuant to the FLSA. The Court first concluded it — like several other significant federal circuit court decisions (in New York  and Atlanta) – would decline to apply the USDOL’s “six-part test” (which usually caused unpaid interns to be found to be employees entitled to minimum wage and overtime payments). All of the federal appellate courts which have examined the six-part test have found that it improperly interprets the “economic realities” test the FLSA uses to determine whether a worker is an “employee,” “independent contractor” or some other kind of unpaid worker like a “volunteer” or “intern.” (These decisions are less a victory for the Trump Administration as opposed to a slap in the face to the Obama Administration for an overreaching interpretation of the FLSA which did not properly follow the law).  After sweeping away the “six-part test,” the Ninth Circuit Court (often thought to be America’s most liberal federal appellate circuit court and the one most generous to employee interests) then adopted the “primary beneficiary” test and then applied it to the facts at hand to conclude that the students were not “employees” entitled to minimum wage and overtime payments because they were the primary beneficiaries of their labors because those labors qualified them to eventually be licensed to practice cosmetology. In the New York case, the question was whether media interns at Fox Pictures were the primary beneficiaries or the movie studio.

Background: USDOL had issued informal guidance in 2010 providing a six-part test to determine whether the economic realities were such that unpaid interns were in fact employees under the FLSA. See Wage & Hour Div., U.S. Dep’t of Labor, Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act (Apr. 2010), https://www.dol.gov/whd/regs/compliance/whdfs71.pdf.  Under the DOL’s six-factor test, an intern was an employee unless ALL of the following factors were met:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Next Steps: USDOL promises in its January 5^th Press Release that effective immediately the Wage-Hour Division will follow and apply the “primary beneficiary test” as the federal appellate courts have not outlined that legal test, has abandoned the six-part test and will issue more detailed written guidance in the future (no date set).

Important Note: As corporate departments begin planning their summer intern programs, careful attention to the “primary beneficiary” test is now required. You will want to seek a written advice opinion as to whether any particular unpaid intern program your company may be considering meets the emerging “primary beneficiary” test. Contact Jen Polcer for details.  

The letters released on January 5^th do not address new issues or topics that have arisen since June but are a re-issue of existing letters which address topics such as tip credits and overtime questions.

Proponents of WHD opinion letters feel they are necessary to provide guidance to employers on unclear regulatory issues, while critics view them as “get out of jail free” cards for employers facing various wage-hour issues in court.

Important Note: Re-issuance of the 17 Bush-era opinion letters signals the return of this Wage-Hour Division’s ongoing use of opinion letters to provide technical assistance and guidance to employers.