With the start of 2018, the US Department of Labor (“DOL”) took one more step to dismantle some of the legacy of the Obama-era labor policies.  On January 5, 2018, DOL dropped its 2010 guidance providing a multi-part test for determining an intern relationship including whether the intern displaces regular employees, and whether the employer derives any benefit or advantage from the work. This test tended to undermine the ostensible employer’s claims. In its place, DOL adopted the judicial formulation increasingly favored by the courts. DOL essentially threw in the towel and agreed to comply with the judicial trend.

DOL thereby adopted a seven-factor test for determining intern status consistent with the Second Circuit’s 2015 ruling in Glatt v. Fox Searchlight Pictures Inc. Under that test, an intern is not an employee if the “economic reality” of the relationship is such that the intern is the primary beneficiary of the relationship.  In that event the intern Is not entitled to minimum wages or overtime or other indicia of employment. DOL also issued an updated “Fact Sheet” for interns focusing on the seven non-exhaustive factors set forth in the Glatt case.  Those factors include whether the interns have a clear understanding about the absence of compensation, whether they receive training in an educational environment, and the extent the experience is tied to an educational program.

The upshot of the change is to make it easier to implement intern programs. If they are tied to the academic calendar, involved training, the students get academic credit, and no compensation is expected, that is now a clear intern relationship, and not an employment relationship. But that doesn’t clear the way for mischaracterizing every employment relationship as internship. There remains ambiguity in the situation and some risks.

Employers should get legal counsel, and if they intend to engage interns they should do so by clear written agreements focusing in on the training aspect of the relationship and its locus to an educational experience. Policies and practices that treat interns like employees can still be problematic. It may be easier to engage interns now, but it still may be possible to cross the line and end up embroiled in a dispute.