Many employers take on unpaid students or recent graduates as trainees in the hope of discovering good workers whom they can add to their paid workforce at the end of the training period. The students may be glad to participate in the training program without pay (and even work their heads off) because of the job experience they will gain, as well as the possibility of being asked to stay on as full-time, salaried employees after the training program is over.

Since the students have no expectation of being paid and are so happy to be in the training program, the employers may assume that the Fair Labor Standards Act (FLSA) is not relevant to this arrangement. That assumption "ain't necessarily so." Before trying to get too much of a good thing, employers should make certain that their unpaid trainees will not be considered "employees" under FLSA. If they are, the employer will be subject to liability under FLSA unless it has complied with FLSA's minimum wage and overtime requirements.

Who is an employee under FLSA? While employees are protected by FLSA, the law defines "employer" and "employee" only in the broadest of terms. Under FLSA, an "employer" includes "any person acting directly or indirectly in the interest of an employer in relation to an employee" (29 U.S.C. s.203(d)). An "employee" is "any individual employed by an employer" (29 U.S.C. s.203(e)(1)). To "employ" is "to suffer or permit to work" (29 U.S.C. s.203(g)).

Are trainees employees? FLSA neither defines trainees nor provides specifically that trainees are not employees covered by the Act. Supreme Court decisions and regulations of the Department of Labor, however, have developed an exclusion from FLSA for trainees.

The Supreme Court, in Walling v. Portland Terminal Co., 67 S.Ct. 639 (1947), held that FLSA was "obviously not intended to stamp all persons as employees, who, without any express or implied compensation agreement, might work for their own advantage on the premises of another." The workers in that case were being trained as railroad brakemen in a training period lasting one week. The Court concluded that these trainees did not fall within FLSA's definition of employee because the employer did not receive any immediate benefit from the work done, and the trainees had no expectation of getting paid.

The economic reality. The Supreme Court elaborated on this case in its holding in Tony and Susan Alamo Foundation v. Secretary of Labor, 471 U.S. 209 (1985). The Court noted: "The test of employment under [FLSA] is one of economic reality." The Alamo case involved individuals who worked for long periods of time for a nonprofit religious foundation. They received no wages but didreceive food, clothing, and shelter. So the "economic reality" was that, though the individuals weren't being paid cash, they were receiving wages in another form and, therefore, were employees under FLSA.

DOL's six-part test. After the Court's holding in Portland Terminal, DOL's Wage and Hour Division issued a six-part test to guide the determination of whether a trainee is in fact an employee under FLSA. The test, in relevant part, states:

"Whether trainees or students are employees of an employer under the Act will depend upon all of the circumstances surrounding their activities on the premises of the employer. If all of the following criteria apply, the trainees or students are not employees within the meaning of the Act:

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.

6. The employer and the trainees or students understand that the trainees are not entitled to wages for the time spent in training." (See Wage & Hour Manual (BNA) (1975).)

Lessons to be learned. One can see that the hypothetical situation described at the outset of this article may not exempt the employer from liability under FLSA. Even though the so-called "trainees" may not be expecting to get paid and may be glad to work just for the experience and possibility of future full-time work, there could be 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 neither defined by nor specifically excluded from FLSA. Based on the Supreme Court's decision in United States v. Silk, 331 U.S. 704 (1947), the courts have developed five factors to be considered in determining whether an individual is an employee under FLSA or an independent contractor falling outside the ambit of FLSA. No single factor is decisive. The totality of the circumstances has to be considered. The five factors are as follows:

1. The degree of control exercised by the employer over the workers.

2. The workers' opportunity for profit and loss and their investment in the business.

3. The degree of skill and independent initiative required to perform the work.

4. The permanence or duration of the working relationship.

5. The extent to which the work is an integral part of the employer's business.

Even though the employer treated the worker as an independent contractor, and the worker accepted this treatment for a period of several years, does not prevent the worker from subsequently claiming he was an employee under FLSA. This much at least is apparent from the recent New York federal district court case of Lee v. ABC Carpet & Home (reported in New York Law Journal, March 11, 2002).

Richard Lee, after working for ABC for eight years as a carpet installation mechanic and all that time identifying himself as self-employed on his tax returns, claimed that he was an employee under FLSA and entitled to back wages. Denying ABC's motion for summary judgment, the court applied the five-factor test and found plenty of disputed facts pertaining to almost all of them. So, now the case will proceed to trial.