Is Your New Hire an Unpaid Student Intern or a Paid Employee?
Richard B. RudolphMay 16, 2018
Recently, the United States Ninth Circuit Court of Appeals (which includes California) ruled on how we answer the question Is Your New Hire an Unpaid Student Intern or a Paid Employee?
The Federal court adopted what is referred to as the “Primary Beneficiary Test” to determine this issue under the Fair Labor Standards Act (“FLSA”).[1] (Benjamin v. B&H Education, Inc., 2017 WL 6460086 (9th Cir.))
Under the Primary Beneficiary Test, the court set forth seven factors to consider in deciding if the FLSA applies to a student internship, thus requiring them to be paid and treated like an employee, and subjecting the hiring company to the same wage and hour laws, including overtime, that apply to other employees.
Here are those 7 factors:
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.
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.
The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
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.
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.
United States Department of Labor, Wage and Hour Division; Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528 (2d Cir. 2015)
It is important to understand that this 7 point Primary Beneficiary Test is non-exhaustive. That means other factors may apply, and no single factor shall be determinative of the outcome. Therefore, to this list I would add that the arrangement should be memorialized in a written agreement signed by both the student intern and the hiring company to remove all doubt about the party’s intention to treat the new hire as an unpaid student intern instead of a paid employee. It is most highly recommended that this written agreement also be approved (which means signed) by whatever educational institution the student intern is presently enrolled.
Fortunately, the court recognized that each case is unique, and to that extent, it also recognizes that this test “reflects a central feature of the modern internship – the relationship between the internship and the intern’s formal education.” (Glatt, 811 F.3d at 537)
To put a fine point on it, the court’s focus is on what the intern receives in exchange for his/her work. So the hiring company should be cautious that a company’s internship program continues to be related to a formal educational program.
To ensure as much as possible that the new hire is treated as an unpaid student intern and not an employee, the hiring company should carefully review the Primary Beneficiary Test above, and be certain they are satisfying all the requirements, especially in providing regular training opportunities and not simply treating the student intern as free labor.
[1] The FLSA applies to your company if your annual income is $500,000.00 or more, or your company is engaged in interstate commerce, which is quite easy to establish and covers nearly all employers regardless of size. So, chances are high that the FLSA applies to you.
Visit the website for Orange County Employment and Wage & Hour attorneys at Rudolph & Chonoles to contact us and find out more about how this new law affects your business.
Don’t Ask, Don’t Tell – The New Prohibition on Seeking Salary Information from Prospective Employees
Beginning on January 1, 2018, Section 432.3 was added to the California Labor Code and prohibits any employer from seeking a prospective employee’s salary history or relying upon such information unless that information was first volunteered by the prospective employee. The only other exception to the new law is found in subsection (e) that excepts salary information “disclosable to the public pursuant to federal or state law, including the California Public Records Act. . .” Interestingly enough, the new law also requires such employers to provide, “upon reasonable request,” a “pay scale” for the position which the prospective employee seeks. Simply put, prospective employees, particularly women, just gained a huge advantage in salary negotiations. See California Labor Code Section 432.3
Why? – Because people (interpreted as women) who have historically been paid less than men (interpreted as women who have been discriminated against) are now protected from the perpetuation of their lower salaries from one employer to the next. This enables them to start on even footing with everyone else the next time they compete for a new job.
Employers—start revising those job applications by removing salary information requests now!
Visit the website for Orange County Employment and Wage & Hour attorneys Rudolph & Chonoles to find out more about how this new law affects your business.
New Sexual Harassment and Abusive Conduct Training Requirement for 2019
Starting in 2019, California employers with 5 or more employees must provide training to their employees for Sexual Harassment and Abusive Conduct Prevention. (Senate Bill 1343; Government Code §12950.1) Employers should not try and over analyze the “5 or more employees” requirement. That head count includes regular employees, seasonal and temporary hires, and even includes including independent contractors.
This should include 1 hour for non-managerial employees, and 2 hours for managerial employees. The first training must occur in 2019, and be repeated once every two years.
Fortunately, the new law also requires the California Department of Fair Employment and Housing (“DFEH”) to provide training courses on its website, so that employers can use that instead of hiring an outside trainer. (2 CCR 11024) Availability of this web based training is expected to happen in “late 2019.” No word yet on when that really means it will be available. If any expense accompanies the training, that expense must be paid by the employer, and the training may not occur on the employee’s personal time. It must be provided by the employer as part of an individual’s employment.
Should employers fail to provide such training in compliance with the new law, employees will have the right to file a complaint with the DFEH after January 1, 2020.
If all goes as planned, the new law will make it relatively painless for comply with the training requirements.
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