“I’m Just an Intern!” DOL Changes Course and Adopts Primary Beneficiary Standard for Intern Compensation CasesDetermining when an unpaid intern is really an employee has been a moving target for the last several years. However, on January 5, 2018, the Department of Labor announced that its Wage and Hour Division will now use the “primary beneficiary” test to determine employee status.

What is the primary beneficiary test? This is the standard numerous appellate courts have adopted over the last several years. The DOL’s announcement is a change in policy from the agency’s six-factor test adopted in 2010, which was widely challenged and several times rejected by courts. Most recently, the Ninth Circuit adopted the “primary beneficiary” test instead of the DOL’s position.

This issue has been percolating for several years (we have written about it here and here). Now that the DOL is getting in line with the seven-factor primary beneficiary test, it is worth a refresher on what factors to consider in whether an intern can be unpaid:

  1. Do the intern and employer clearly understand that there is no expectation of compensation for the job?
  2. Does the internship provide training that would be similar to that given in an educational environment?
  3. Is the internship tied to a formal education program with coursework and/or academic credit?
  4. Does the internship fit into the intern’s academic calendar?
  5. Is the length of the internship limited to a period where they are provided with beneficial learning?
  6. Does the intern’s work assist or complement the work of paid employees instead of displacing them?
  7. Does the intern understand that the intern is not automatically entitled to a paid job at the conclusion of the internship?

This change does not make it open season to set up unlimited unpaid internships. Those free interns can still sue you and maybe win, depending on the facts of the case. If you want to use unpaid interns, the best bet is still to set it up through the intern’s school and see about academic credit. If that is not a viable option, the safest course is still to pay interns at least minimum wage and overtime as appropriate.

Calling ICE about Your Plaintiff Could Make You the DefendantAn attorney representing his employer-client calls Immigration and Customs Enforcement (ICE) to inquire about the plaintiff’s immigration status. Is that potentially retaliation under the employment laws? If it is, can the attorney be sued personally for it? According to the Ninth Circuit, the answer is yes on both counts, and the Supreme Court may have the final say on such a scenario.

 

For those of you who are tempted to stop reading because you aren’t a lawyer (and may not care if your lawyer can be sued)—not so fast. If a non-employer can be sued personally for retaliation, this could have broad application to HR professionals, accountants, private investigators, or other consultants.

Background

Jose Arias sued his former employer, Angelo Dairy, for violation of wage-and-hour laws under the California Labor Code. Dairy hired an attorney, Anthony Raimondo, to defend the case. In 2011 as the trial date approached, Raimondo contacted ICE to see about Arias’s immigration status (which apparently was potentially problematic for Arias). This led to Raimondo having multiple communications with ICE about potentially taking Arias into custody. Additionally, it led to disqualification of Arias’ legal counsel, the California Rural Legal Assistance group, which was barred by statute from representing undocumented aliens. A month before trial, Arias agreed to settle the case “due in substantial part to the threat of deportation created by [Raimondo’s] communications with ICE.” Raimondo had apparently contacted ICE on previous occasions related to other employees who asserted workplace rights against his clients.

After settling his wage and hour suit, Arias then filed a retaliation case against Dairy, as well as Raimondo personally. Arias alleged that Raimondo’s call to ICE was retaliation under the FLSA and intentional infliction of emotional distress.

District Court: The Attorney Is Not an Employer and Cannot Be Sued

The preliminary issue was whether Arias could sue Raimondo for FLSA retaliation when Raimondo was not Arias’ employer. The FLSA’s anti-retaliation statute makes it unlawful for “any person” to “discharge or in any other manner discriminate against any employee because such employee has . . . instituted any proceeding under” the FLSA. The Act defines “employer” to include “any person acting directly or indirectly in the interest of an employer in relation to an employee…”

Arias settled and dismissed his retaliation claims against Dairy, but not against Raimondo personally. The District Court dismissed Arias’ complaint against Raimondo, finding that an aggrieved employee can only sue his or her employer under the FLSA and that the FLSA’s provisions referred to an employer-employee relationship. The District Court found that Raimondo never acted “directly or indirectly in the interest of the employer” in employment matters. In coming to this conclusion, the District Court considered “the total employment situation and economic realities of the work relationship.” Arias appealed, and the Ninth Circuit reversed.

Ninth Circuit: The FLSA’s Anti-Retaliation Section Is Broader than Just the Employer-Employee Relationship

On appeal, the Ninth Circuit reversed, explaining that the FLSA provisions for wage-and-hour violations and retaliation claims “are as different as chalk is from cheese.” While the employer umbrella for wage-and-hour claims looks to the economic realities test, when a plaintiff alleges a retaliation claim it “is a different animal altogether.” As the court expressed:

This distinctive purpose [of the anti-retaliation provision] is not served by importing an “economic control” or an “economic realities” test as a line of demarcation into the issue of who may be held liable for retaliation. To the contrary, the FLSA itself recognizes this sensible distinction…. by prohibiting “any person”—not just an actual employer—from engaging in retaliatory conduct.  By contrast, the FLSA’s primary wage and hour obligations are unambiguously imposed only on an employee’s de facto “employer,” as that term is defined in the statute. Treating “any person” who was not a worker’s actual employer as primarily responsible for wage and hour violations would be nonsensical.

The appellate court also seemed disturbed by Raimondo’s “underhanded plan to derail Arias’ lawsuit” and history of reporting employee-claimants to ICE.

Attorney Asks the Supreme Court to Decide

Raimondo did not take kindly to the Ninth’s Circuit’s opinion, and on October 31, 2017, filed a petition for a writ of certiorari, essentially asking the U.S. Supreme Court to hear the case.  Raimondo contended that the Ninth Circuit’s conclusion flouted prior precedent on the FLSA’s definition of employer. The petition noted that the majority of circuits use the economic realities test to determine who is an employer, and do not differentiate between a wage-and-hour versus a retaliation-based claim.

Stay Tuned

If the Ninth Circuit opinion stands, it could have far-reaching consequences for the relationships among employers, their attorneys, and others who could be dissuaded from representing employers or from pursuing certain strategies where they could become potential defendants in FLSA retaliation cases. As Raimondo’s petition tries to illustrate, not just attorneys, but also accountants, HR personnel, and even a gardener, could become defendants for playing some role in an adverse action if ICE has been contacted. An attorney may have legitimate, non-retaliatory reasons for asking ICE about an immigration status, but the ruling may chill attorneys from representing employers and hamper employers’ efforts to secure counsel. We will see if the Supreme Court makes a final determination on this significant issue, but the Ninth Circuit’s decision creates the platform for an individual (attorney or otherwise) who is not the employer and does not control the employer to be sued for retaliation under the FLSA.

The Waiting Is the Hardest Part:  Fifth Circuit Rules on Compensability of Pre-Shift Wait TimeWhile the Portal-to-Portal Act sounds more like a science fiction movie than a wage statute, it comes into play every day for hourly employees. Enacted in 1947 in response to litigation following the relatively new (at the time) Fair Labor Standards Act, the act attempts to provide rules for when employees must be paid when they may not be actually performing their duties. Specifically, FLSA prohibits employees from seeking wages for time spent:

  • Traveling to and from the actual place where they perform the principal activities of their job, and
  • Activities which are preliminary or postliminary to those work activities.

The purpose of the law was to only compensate employees for activities integral and indispensable to their work.

Prior Court Decisions

Case law after the passage of the act further defined what counted and what didn’t. For example, courts held that for employees who manufactured batteries and worked with dangerous chemicals and fumes, time showering and changing clothes after work counted as integral and indispensable to the job and should be paid. However, courts held that time waiting to don protective gear (not the time actually spent putting on the gear) was not compensable under the Portal-to-Portal test.

More recently, courts have addressed post-shift security screenings of employees to see if that waiting time was compensable. In Integrity Staffing Sols., Inc. v. Busk, the Supreme Court held that since mandatory security screenings of warehouse employees’ were not related to their jobs of retrieving and packaging products for shipment, the time waiting for the post-shift security screenings was not compensable. Other state courts have followed suit.

So What Did the Fifth Circuit Do?

On November 9, the Fifth Circuit issued an opinion dealing with construction workers on an oil drilling operation. The plaintiffs were scaffolding workers that had to park in a remote lot and ride company buses to the refinery. While their shifts started at 7 a.m., the buses sometimes delivered them to the refinery earlier, and they had to wait around until the shift started. They filed an action arguing that the time they had to wait between being dropped off and the start of the shift was compensable because they were not allowed to perform any work during that time, but it was beneficial to the employer.

The Fifth Circuit held that the test for Portal-to-Portal compensability was whether the wait time was integral and indispensable to the principal activities they were employed to perform. Here, plaintiffs erected and dismantled scaffolding. During the wait time, they were not undergoing safety training, donning safety equipment or completing paperwork—all of that was done after 7 a.m. and paid. Instead, most of the workers testified that they used the wait time to “chat” or “smoke.” They argued that since the wait time was required by and benefited the employer, they should be paid for it.

The court disagreed. It held that under the Busk decision, the fact that an employer required an activity and that it may benefit the employer was not enough to make it compensable. Instead, the workers had to show that the preliminary wait time was integral and indispensable to their work erecting and dismantling scaffolding. The proof did not show that it was, and therefore they were not entitled to compensation for it.

What to Do with Waiting Employees?

If there are things that your employees are having to do before or after a shift, you need to be sure of what they are actually doing. If they are waiting for something like a post-shift security screening, that time may not be compensable. If they are donning safety equipment or cleaning off after a dangerous activity, it may be compensable. This decision shows that it is important to have well-defined rules as to when a shift begins and what is required of an employee pre- or post-shift.