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Is Your Intern an Employee Who Must be Paid (and afforded mandatory benefits)?

Fair Labor Standards Act [“FLSA”] is the federal law that applies to employers with gross annual revenues of $500K. The New York Labor Law [“NYLL”] applies to all employers.

These laws require that employees be paid not less than the current minimum wage for all hours worked. Currently, the minimum hourly wage in NY is $10.40. Effective December 31, 2018, the minimum hourly wage is $11.10.

Non-exempt employees who work more than forty (40) hours in a given week must be paid overtime, i.e., one and one-half times their regular rate of pay for all hours worked above forty (40).

Some employees are exempt from the right to receive overtime pay. To be exempt, the following three must be true:

EMPLOYEE MUST BE PAID A WEEKLY SALARY OF A SPECIFIED AMOUNT. IF PAID LESS, THEY ARE NON-EXEMPT (AND ENTITLED TO OVERTIME PAY) AS A MATTER OF LAW. Currently, the minimum weekly salary for an exempt employee in NY is $780.00 ($40,560/year). Effective December 31, 2018, the minimum weekly salary is $832.00.

THERE MUST BE NO UNLAWFUL DEDUCTIONS FROM THE SALARY PAID. In simple terms, absent five recognized circumstances, you cannot make any deductions from the salary paid. The five circumstances are: (1) absenteeism; (2) certain sick leave/Family & Medical Leave Act protected leave; (3) penalties imposed in good faith for infractions of safety rules; (4) unpaid disciplinary suspensions; and (5) certain mistaken overpayments.

FINALLY, THE DUTIES PERFORMED BY THE EMPLOYEE MUST MEET ONE OF SEVERALTESTS IN THE FLSA. The most common “white collar” exemptions are: (i) Administrative, (ii) Executive and (iii) Professional.

On January 5, 2018, the United States Department of Labor [“USDOL”]—the agency that enforces the FLSA—announced it would no longer apply the six-factor test in USDOL Fact Sheet #71 (https://www.dol.gov/whd/regs/compliance/whdfs71.pdf) to determine whether an intern was an employee for purposes of wage and hour laws. Instead, it will apply the “primary beneficiary” test used by several federal circuit courts (including the Second Circuit in Glatt v. Fox Searchlight Pictures, 791 F.3d 376 [2015]).

The primary beneficiary test considers the extent to which:

  1. Both parties understand that the intern is not entitled to compensation.

  2. The internship provides training that would be given in an educational environment.

  3. The intern’s completion of the program entitles him or her to academic credit.

  4. The internship corresponds with the academic calendar.

  5. The internship’s duration is limited to the period when the internship educates the intern.

  6. The intern’s work complements rather than displaces the work of paid employees while providing significant educational benefits.

  7. The intern and the employer understand that the internship is conducted without entitlement to a paid job at the internship’s end.
None of these seven factors are addressed with a simple yes or no answer. Rather, they are addressed by the extent to which each factor is met.

The factors are used to determine which party—the intern or the lawyer/other entity—is the primary beneficiary of the relationship. If at least 51 percent of the benefits go to the intern, the intern arguably is the main beneficiary and does not have to be paid.

Will New York Apply the Primary Beneficiary Test?: Historically, the NYS Department of Labor [“NYSDOL”]– the agency that enforces the NYLL—has required consideration of 11 factors, the six factors in USDOL Fact Sheet #71 PLUS five more of its own.

The NYSDOL Fact Sheet P725 (https://www.labor.ny.gov/formsdocs/factsheets/pdfs/p725.pdf ) was published in July of 2016 (before USDOL announced that it would apply only the primary beneficiary test going forward).

The additional factors requiring consideration under NY law are:
  1. Any clinical training is performed under the supervision and direction of people who are knowledgeable and experienced.

  2. The trainees or students do not receive employee benefits.

  3. The training is general and qualifies trainees or students to work in any similar business. It is not designed specifically for a job with the employer that offers the program.

  4. The screening process for the internship program is not the same as for employment. The screening only uses criteria relevant for admission to an independent educational program.

  5. Advertisements, postings, or solicitations for the program clearly discuss education or training, rather than employment, although employers may indicate that qualified graduates may be considered for employment.
    Practical Advice:
What can you do to limit your liability if you engage an intern and do not want the legal obligation to pay them?
  1. Have a written policy and address as many of the factors above in writing with the intern BEFORE he or she begins the experience. Have the intern sign a document indicating that he or she understands and accepts your policy and description of the factors.

  2. Train those who will interact with the interns to be sure that they respect each of the factors above and acts consistently with your direction.

  3. Keep accurate records of the work done by interns.

  4. Schedule internships to accommodate interns’ academic schedules, preferably permitting them to work after class hours, on weekends, or during vacations.

  5. Limit the duration of internships to the time needed to impart specifically identifiable educational or training benefits to interns.

  6. Liaise formally or informally with interns’ schools or instructors and document how the internship complements the interns’ academic program, preferably resulting in the intern receiving academic credit for the internship.

  7. Assign individual mentors/supervisors to each intern to ensure that the intern receives some structured instruction and is not relegated only to performing menial tasks.
Regardless of Any Obligation to Pay, You may NOT Unlawfully Discriminate

Since 2014, interns in NY have been protected from unlawful discrimination like most employees. For example, an intern may not be subjected to harassment or other adverse action on account of their membership in a protected class (see Section 296-c of the NY Executive Law and https://dhr.ny.gov/sites/default/files/pdf/intern-rights.pdf).

Classes protected in NY include, but are NOT limited to, race, religion, sex, national origin, age, sexual orientation, disability and marital status.

Interns who complain in good faith of unlawful discrimination are protected from retaliation.

Interns who believe that their rights have been violated may file a charge of discrimination with the New York State Division of Human Rights [“DHR”], the agency that enforces Section 296-c. The deadline to file such a charge is 365 days from the date of the action they wish to challenge. Interns do NOT have to hire a lawyer to prosecute a charge of discrimination with the DHR.

Alternatively, an intern may file a lawsuit in New York State Supreme Court within three years from the date of the action they wish to challenge.