Interns or Employees? Courts Continue to Wrestle with Internships under the FLSA

Interns continue to create confusion for employers.  A recent lawsuit highlights the risk posed by utilizing unpaid student interns.  In Schumann v. Collier Anesthesia, P.A., No. 14-13169, (11th Cir, 2015), the U.S. Court of Appeals for the Eleventh Circuit overturned a dismissal of an action brought by 25 former students in a nursing master's degree program and remanded the case back to the trial court to determine whether these student interns were actually employees under the Fair Labor Standards Act.

According to the Department of Labor (DOL), there are six factors to consider to determine whether an individual is an intern or employee:

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.

DOL, Wage & Hour Div., Fact Sheet #71, Internship Programs Under The Fair Labor Standards Act (April 2010).

 

What is disturbing for employers is the fact that the Schumann Court expressly rejected the lower court's reliance on the factors above and the guidance contained in the DOL's Field Operations Handbook.  Further, the court distinguish the U.S. Supreme Court decision of Walling v. Portland Terminal Co., 330 U.S. 148 (1947) that formed the basis for the above six factor test. The Schumann Court, however, held that long-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" facts of the Portland Terminal case in the 1947.  The court went on to explain that “courts reviewing cases involving students and trainees … have, for the most part, concentrated on evaluating the ‘primary beneficiary' of the training or school program to determine whether participants constituted ‘employees' under the FLSA” because this approach “reveals the ‘economic reality' of the situation.”

In the case of the students in the nursing program, the court noted that "both the intern and the employer may obtain significant benefits.” Consequently, it decided “to 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 towards the student.”

The court, following the lead of a recent Second Circuit decision, held that the following non-exhaustive list of factors should be used:

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.

See also, Glatt v. Fox Searchlight Pictures, Inc., 791 F.3d 376 (2d Cir. 2015).

Based on these factors, the court ordered the case to go back to the trial court so that the Judge could consider the case based on the above seven-factor test.

Different courts are handling internship issues in different ways.  If, however, the recent Second and Eleventh Circuit decisions are any indication of a trend, companies should review their relationships with interns to ensure compliance with the FLSA.

EEOC Must pay Nearly $1M in Fees for Background Check Case

The EEOC has recently been pursuing cases against companies for allegedly discriminating in its use of background checks.  In the recent case of EEOC v. Freeman, 2015 BL 288334, D. Md., No. 8:09-cv-02573, 9/4/15, the EEOC pushed its position too far.  The Court in Freeman summarized the facts of the case as follows:

Freeman, as a regular part of its hiring process, conducted criminal background checks on all applicants who were offered a position, and conducted credit background checks on applicants who were offered financially sensitive positions. EEOC v. Freeman, 961 F. Supp. 2d 783 , 787 (D. Md. 2013). Importantly, applicants were not turned away for any negative information. Rather, Freeman limited in scope the type of negative information that would disqualify an applicant. For example, as to the criminal background check, Freeman generally did not consider arrests, but only convictions that had occurred within the past seven years. Id. at 788 . Furthermore, Freeman did not consider all convictions, but only those for certain crimes. Id . Similarly, with regard to credit checks, only certain negative items would exclude an applicant from being hired. Id. at 789 .

Freeman rejected a job applicant for a position based on information on her credit report and the applicant then filed a charge of discrimination with the EEOC.  The EEOC took the position that Freeman’s use of background checks had a disparate impact on Arica-American, Hispanic, and male applicants. In support of this claim, the EEOC relied on statistical evidence from an “expert.”  The court found that the expert’s statistical analysis was “inexplicably shoddy,” and dismissed the case for lack of any evidence of disparate treatment.  Freemen then moved for attorneys fees against the EEOC.  The Court found that the EEOC statistics were “divorced from any reference to” the allegations against Freeman and therefore required the EEOC to pay Freeman’s attorneys fees for defending the case.  Freeman was awarded nearly a million dollars in fees.

The EEOC has had issues with its statistical analysis before.  In EEOC v. Kaplan Higher Education Corp., 748 F.3d 749, (6th Cir. 2014), the Sixth Circuit upheld the exclusion of EEOC expert statistics as well.

But, the EEOC has also had success in pursuing litigation based on background checks.  The EEOC recently settled a case against BMW for $1.6 million and is continuing to litigate against Dollar General.  Employers should contact their employment counsel to review their credit and criminal background check policies.

FTC Issues Cyber Security Guidance: Good Advice for Employers and Business

The Federal Trade Commission has issued a guide for businesses that sets forth cyber security practices based on lessons learned from FTC cases.  Regardless of industry, the FTC guide can be used to help assess the cyber-security posture of an entity.  Employers should be aware that not all cyber security risks occur from distant hackers trying to break into a network.  In fact, many cyber issues begin with an "inside job" and can lead to huge liability.  The FTC's guide is a free resource that applies regardless of company size or sector.