Many companies,
including non-profit companies, provide opportunities to young student workers
in the form of unpaid internships. Contrary to popular opinion, companies must
comply with the Fair Labor Standards Act (FLSA), which, pursuant to case law, only
allows unpaid internships under certain limited circumstances. Although the
FLSA applies to both for-profit and non-profit companies, at the outset it requires
an employment relationship between an employer and employee. Thus, the critical
issue is whether an employment relationship exists.
In evaluating whether
an employment relationship exists, courts look at the ‘economic realities’ of
the individual case--worker’s economic dependence on the alleged employer-- in
order to find the existence of an employment relationship. The Supreme Court
has yet to address whether student interns are ‘employees’ for purposes of the
FLSA. However, the Supreme Court has considered a case involving trainees in a
company’s own training program and ruled that the FLSA does not define the
employment relationship so broadly as to render all who provide any kind of
service employees. See Walling v. Portland Terminal Co., 330 U.S.
148, 152 (1947). Since then, lower courts have applied the Portland
Terminal holding in the student intern context.
In Portland
Terminal, a railroad gave prospective brakemen a seven- or eight-day
preliminary training course. There were no classrooms. Under a yard crew’s
supervision, the trainees first observed the work and then performed it. Those
who successfully completed the course formed a pool of workers available to the
railroad as openings occurred. The trainees were not paid for the training
period.The Supreme Court found that, because the trainees were not employees
under FLSA precedent, they also were not entitled to compensation for their
training. Although the trainees performed “work in the kind of activities
covered by the [FLSA],” they still had to prove they were “employees.” In that
regard, the court looked at the relative benefits of the training program to
the trainees and the railroad. The Portland
Terminal court found that the trainees’ “work does not expedite the company
business, but may, and sometimes does, actually impede it.” Id. at
150. Clearly, there is no employment relationship if the business “receive[s]
no ‘immediate advantage’ from any work done by the trainees,” or if the
trainees are “work[ing] for their own advantage.” Id. at 152-53.
That is because the FLSA “was not intended to penalize [companies] for
providing, free of charge, the same kind of instruction [as a school] at a
place and in a manner which would most greatly benefit the trainees.” Id.
at 153. Otherwise, “all students would be employees of the school or college
they attended,” and everyone who performed work for others (but for their own
personal purposes) would be entitled to wages. Id. at 152. Hence,
although the trainees performed hands-on work during the training period, and
the railroad created a pool of trained brakemen from which it could hire as
openings arose, the Supreme Court held the trainees were not “employees.”
Applying Portland
Terminal, lower courts have found that no employment relationship exists
for student intrens where: the work is an extension of studies and the intern
received course credit and a grade for the work; the intern’s performance of
actual work at the facility is the central purpose of the internship; no
compensation was contemplated or paid; the facility received very little
benefit from the intern’s work in that the intern did not displace a paid
worker and did not lighten the workload for other workers; and the business had
to supervise the intern’s work, provide feedback and training as needed; and
answer the intern’s questions. Some courts, including appellate courts in the
Sixth Circuit (Kentucky, Michigan, Ohio, and Tennessee) and Second Circuit
(Connecticut, New York, and Vermont), have said this analysis, and Portland
Terminal, create a “primary benefit” test: Whether the primary benefit
of the internship was to the student or the business.
The Department of
Labor (DOL) has stated that no employment relationship should be found when a
student receives credit toward graduation for the internship and the internship
provides real life experiences unobtainable in the classroom setting .The DOL has
created a series of factors to be used to determine employment, which have been
used by some but not all courts. The
factors used by the Department of Labor are:
1. the training, even though it includes actual
operation of the facilities of the employer, is similar to that which would be
given in a vocational school;
2. the training is for the benefit of the
trainees or students;
3. the trainees or students do not displace regular
employees, but work under their close observation;
4. the employer that provides the training
derives no immediate advantage from the activities of the trainees or students;
and on occasion its operations may actually be impeded;
5. the trainees or students are not necessarily
entitled to a job at the conclusion of the training period; and