A New York District Court recently held employers cannot use an internship program in order to avoid paying wages or paying less than minimum wage. The court separated and defined interns and employees and adopted the Department of Labor’s (DOL) guidelines. If your company employs an internship program now would be a good time to review it. Complicating matters, since the passage of the Patient Protection and Affordable Care Act, the courts ruling may reach further then just unpaid internships. Finally, it is highly likely a California Court will follow the same reasoning the NY court used.
Patient Protection Affordable Care Act (Obamacare) – The court defined when an intern becomes an employee. This is especially noteworthy because of the implications of the Patient Protection Affordable Care Act (ACA). The ACA does not differentiate interns from employees, so DOL and Courts are left to make the definitions. Under the ACA if an individual is an employee they are either a full time employee, part time employee, or a seasonal worker. As the ACA currently stands, unless your intern meets the six factor test they are classified as an employee under the ACA.
Intern vs. Employee -There is no reason to cancel or decide against an internship program just yet. Perhaps your internship program simply needs a few tweaks.
California generally follows Federal Labor Laws – The U.S. Department of Labor essentially followed a US Supreme Court holding which created a six factor test distinguishing an employee from a trainee. (Walling v. Portland Terminal Co.; DOL Fact Sheet #71 [April 2010].) In the recent New York case, the court used both the Walling decision and the DOL’s Fact Sheet to hold a company cannot use an “intern” classification to get around paying wages.
California’s Division of Labor Standards Enforcement (DLSE) prepared its’ own opinion letter regarding interns in 2010 (2010.04.07). California’s DLSE aligned California’s internship classification with the FLSA and adopted the same six factors. As well, California’s labor laws are generally compared and associated with the FLSA. Furthermore, California and Federal laws share similar definitions of “employee” and “employ,” therefore it is reasonable to assume a California Court would adopt the same rationale the NY court.
The six criteria are:
(1) Even though an intern is involved in the operations of a for-profit business, the interns are more involved in training (like the training 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 the existing staff;
(4) The employer providing the training derives no immediate advantages from the activities, in fact training the intern may actually impede its operations
(5) Intern is not entitled to a job at the conclusion of the internship; and
(6) Both the employer and employee understand the intern is not entitled to wages while acting as an intern.
Look for Part 2 of this article in our November issue.
Robert J. Olson is an associate Neil Dymott. His areas of practice include business litigation, labor and employment law and civil litigation. For further information, Mr. Olson can be reached at rolson@neildymott.com