In a decision issued on April 28, 2011, the Sixth Circuit Court of Appeals offers employers some clarity on the test to determine whether using unpaid interns or other student trainees violates the Fair Labor Standards Act (FLSA). In this case, Solis, Secretary of Labor v. Laurelbrook Sanitarium and School Inc., 6th Cir. No. 09-6128, the Court threw out a U.S. Department of Labor lawsuit against a Tennessee religious school’s student work experience program.

The Department of Labor brought an action against the Laurelbrook school alleging that its students were "employees" and had to be paid under the FLSA. The school operates a nursing home partially staffed by students to further the students’ practical training. The Sixth Circuit affirmed the district court’s finding that the school’s students were not "employees." The Court noted that there is no bright-line test for determining whether a student worker is an employee for purposes of the FLSA. The Court affirmed the district court’s use of the "primary benefit" test in making the determination. This test ascertains which party derives the primary benefit from the relationship. If a student receives the primary benefit of the work performed for a purported employer, and the student’s presence does more harm to the purported employer’s operations than good (or no good at all), the student will not be considered to be an employee under the FLSA. Factors such as whether the relationship displaces paid employees and whether there is educational value derived from the relationship are relevant considerations.

The Court expressly rejected the Department of Labor’s six-factor test for determining "employee" status. These factors are:

  1. the training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school;
  2. the training is for the benefit of the trainees or students;
  3. the trainees or students do not displace regular employees, but work under their close observation;
  4. the employer that provides the training derives no immediate advantage from the activities of the trainees or students; and on occasion his operations may actually be impeded;
  5. the trainees or students are not necessarily entitled to a job at the conclusion of the training period; and
  6. the employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

The Department of Labor’s longstanding position has been that all six criteria must apply before the agency will consider that a youth engaged in a career education program is not an employee for purposes of the FLSA.

While the Sixth Circuit clarified the proper test to be used (at least in Ohio, Michigan, Kentucky and Tennessee) in determining whether students are "employees" under the FLSA, employers must continue to exercise caution when considering using student workers. If the employer is obtaining the primary benefit of the relationship with the student, failing to pay wages could run afoul of the FLSA. Employers outside the Sixth Circuit should also be prepared to justify any unpaid internship program based on the Department of Labor’s test.