Compensation Obligations for Vocational Students and Unpaid Interns under the FLSA

Young professionals enroll in vocational programs and internships to gain hands-on experience that is required for licensure or to obtain an advantage over their peers in the marketplace for coveted jobs.  These individuals, oftentimes students, “work” for no remuneration beyond academic credit or the incremental advancement towards completion of the program.  Recently, interns and vocational students have filed class action lawsuits contending that some employers and vocational schools have violated the Fair Labor Standards Act (“FLSA”) by failing to pay them as “employees.”  Thankfully, guidance on this issue has emerged from the federal courts and the Department of Labor (“DOL”). 

The FLSA requires employers to pay all “employees” a specified minimum wage and overtime of time and one-half for hours worked in excess of forty hours per week.  However, the FLSA defines “employee” somewhat vaguely as an “individual employed by an employer.”  29 U.S.C. § 203(e)(1).  Federal courts and the DOL have applied a “primary beneficiary” test to determine whether an intern or vocational student is an “employee” covered by the FLSA.  Recent decisions from the Second Circuit are illustrative of how courts resolve this issue.

In Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528, 536-37 (2d Cir. 2016), the Second Circuit adopted seven
non-exhaustive factors to determine whether an intern is an “employee”:

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.

The court stressed that “[n]o one factor is dispositive and every factor need not point in the same direction for the court to conclude that the intern is not an employee entitled to the minimum wage.” 

More recently, in Velarde v. GW GJ, Inc., -- F.3d -- (2d Cir. Feb. 5, 2019), the Second Circuit extended the application of the primary beneficiary test to individuals enrolled in for-profit vocational schools, and held that a former cosmetology student was not entitled to unpaid wages from the for-profit vocational school he
attended while in pursuit of his state cosmetology license.  The Second Circuit held that the primary beneficiary test “is equally suitable for distinguishing between ‘employees’ and ‘bona fide students’ of vocational schools or vocation-related programs (such as a training salon) where trainees acquire necessary skills by practicing their craft in a real-world setting.”  Id. at 10.  “Like interns,” the Court explained, “vocational students enter a course of study with ‘the expectation of receiving educational or vocational benefits that are not necessarily expected with all forms of employment.’”  Id. at 10-11 (quoting Glatt, 811 F.3d at 536). 

            In its opinion, the Velarde Court made the following observations:

• “a vocational school is more likely to be found to ‘employ’ its students if it does not have a ‘formal education program’ with ‘integrated coursework,’ and
  instead exclusively requires students to perform tasks that are the same as those done by regularly compensated employees”;

•  “a vocational school that runs a training program whose duration far exceeds ‘the period in which the program provides the student with beneficial
  learning’ may well be the primary beneficiary of that relationship.”

• “state licensing requirements may often serve as strong evidence of the amount of practical training necessary for a student to become a competent professional, but will not always be determinative.”

The Court rejected the plaintiff’s assertions that he should have been able to allocate his time differently among the various areas of study and that he should not have been required to do clerical and janitorial tasks:

That a vocational school does not provide the optimal learning experience for a student does not necessarily transform it into the primary beneficiary of the
relationship. This is especially so where the school (as did the Academy here) provides a state-accredited course of vocational study, requires no more than
the number of hours specified by the state, the state’s required numbers of hours are not challenged as unreasonable, and the school adequately prepares
students for that state’s licensure exam . . . .

The Court concluded that“[t]his is not a case in which a business uses the facade of a vocational school to deceive students into working unexpectedly long hours
without compensation, replacing the labor of its paid employees, or working hours well beyond the long-standing state requirements.”  Id. at 16-17.

Accordingly, vocational schools and for-profit entities should familiarize themselves with the primary beneficiary test when designing academic programs. Courts determine compensation obligations under the FLSA on a case-by-case basis by analyzing the economic realities of the parties’ relationship.  In the vocational school setting, adherence to licensing requirements is probative evidence of the student’s status as the primary beneficiary of the relationship.