Since the students have no expectation of beingpaid and are so happy to be in the trainingprogram, the employers may assume that the FairLabor Standards Act (FLSA) is not relevant tothis arrangement. That assumption "ain'tnecessarily so." Before trying to get too much of agood thing, employers should make certain thattheir unpaid trainees will not be considered"employees" under FLSA. If they are, theemployer will be subject to liability under FLSAunless it has complied with FLSA's minimumwage and overtime requirements.
Who is an employee under FLSA? Whileemployees are protected by FLSA, the lawdefines "employer" and "employee" only in thebroadest of terms. Under FLSA, an "employer"includes "any person acting directly or indirectlyin the interest of an employer in relation to anemployee" (29 U.S.C. s.203(d)). An "employee"is "any individual employed by an employer" (29U.S.C. s.203(e)(1)). To "employ" is "to suffer orpermit to work" (29 U.S.C. s.203(g)).
Are trainees employees? FLSA neither definestrainees nor provides specifically that traineesare not employees covered by the Act. SupremeCourt decisions and regulations of theDepartment of Labor, however, have developedan exclusion from FLSA for trainees.
The Supreme Court, in Walling v. PortlandTerminal Co., 67 S.Ct. 639 (1947), held thatFLSA was "obviously not intended to stamp allpersons as employees, who, without any expressor implied compensation agreement, might workfor their own advantage on the premises ofanother." The workers in that case were beingtrained as railroad brakemen in a training periodlasting one week. The Court concluded that thesetrainees did not fall within FLSA's definition ofemployee because the employer did not receiveany immediate benefit from the work done, andthe trainees had no expectation of getting paid.
The economic reality. The Supreme Courtelaborated on this case in its holding in Tony andSusan Alamo Foundation v. Secretary of Labor,471 U.S. 209 (1985). The Court noted: "The testof employment under [FLSA] is one of economicreality." The Alamo case involved individualswho worked for long periods of time for anonprofit religious foundation. They received nowages but didreceive food, clothing, and shelter.So the "economic reality" was that, though theindividuals weren't being paid cash, they werereceiving wages in another form and, therefore,were employees under FLSA.
DOL's six-part test. After the Court's holding inPortland Terminal, DOL's Wage and HourDivision issued a six-part test to guide thedetermination of whether a trainee is in fact anemployee under FLSA. The test, in relevant part,states:
"Whether trainees or students are employees ofan employer under the Act will depend upon allof the circumstances surrounding their activitieson the premises of the employer. If all of thefollowing criteria apply, the trainees or studentsare not employees within the meaning of the Act:
1. The training, even though it includes actualoperation of the facilities of the employer, issimilar to that which would be given in avocational school.
2. The training is for the benefit of the trainees orstudents.
3. The trainees or students do not displaceregular employees, but work under their closeobservation.
4. The employer that provides the trainingderives no immediate advantage from theactivities of the trainees or students, and onoccasion, his operations may actually beimpeded.
5. The trainees or students are not necessarilyentitled to a job at the conclusion of the trainingperiod.
6. The employer and the trainees or studentsunderstand that the trainees are not entitled towages for the time spent in training." (See Wage& Hour Manual (BNA) (1975).)
Lessons to be learned. One can see that thehypothetical situation described at the outset ofthis article may not exempt the employer fromliability under FLSA. Even though the so-called"trainees" may not be expecting to get paid andmay be glad to work just for the experience andpossibility of future full-time work, there couldbe a situation where they are deemed"employees" under FLSA if the employer derives"immediate advantage" from their activities.
A Note on Independent Contractors.Independent contractors, like trainees, are neitherdefined by nor specifically excluded from FLSA.Based on the Supreme Court's decision in UnitedStates v. Silk, 331 U.S. 704 (1947), the courtshave developed five factors to be considered indetermining whether an individual is an employeeunder FLSA or an independent contractor fallingoutside the ambit of FLSA. No single factor isdecisive. The totality of the circumstances has tobe considered. The five factors are as follows:
1. The degree of control exercised by theemployer over the workers.
2. The workers' opportunity for profit and lossand their investment in the business.
3. The degree of skill and independent initiativerequired to perform the work.
4. The permanence or duration of the workingrelationship.
5. The extent to which the work is an integral partof the employer's business.
Even though the employer treated the worker asan independent contractor, and the workeraccepted this treatment for a period of severalyears, does not prevent the worker fromsubsequently claiming he was an employee underFLSA. This much at least is apparent from therecent New York federal district court case ofLee v. ABC Carpet & Home (reported in NewYork Law Journal, March 11, 2002).
Richard Lee, after working for ABC for eightyears as a carpet installation mechanic and allthat time identifying himself as self-employed onhis tax returns, claimed that he was an employeeunder FLSA and entitled to back wages. DenyingABC's motion for summary judgment, the courtapplied the five-factor test and found plenty ofdisputed facts pertaining to almost all of them.So, now the case will proceed to trial.
Many employers take on unpaid students or recentgraduates as trainees in the hope of discoveringgood workers whom they can add to their paidworkforce at the end of the training period. Thestudents may be glad to participate in the trainingprogram without pay (and even work their headsoff) because of the job experience they will gain,as well as the possibility of being asked to stayon as full-time, salaried employees after thetraining program is over.