July 13, 2010

Unpaid Internships: Are They Legal?

The economy is still sluggish. And as we move into the summer months, there is always an influx of cheap (and sometimes free) labor coming out of colleges, universities and trade schools. These “interns” use the summer to work for a company, making connections and learning a business where they believe they can get a job once they graduate. In turn, businesses pay nearly nothing to the interns, thinking instead that it is pay enough to instill in these individuals the opportunity to learn the industry and meet people along the way. While this may be true, the federal Department of Labor (“DOL”) recently issued a fact sheet providing information to help businesses determine whether interns are truly gaining an education and are appropriately unpaid, or whether they are “employees” and thus must be paid minimum wage and overtime under the Fair Labor Standards Act (“FLSA”) for the services they provide. The FLSA defines the term “employ” broadly to include any individuals who are required to suffer, or permitted to, work. With such a broad definition of employment, internships in the “for-profit” sector are generally considered employment under the FLSA. As a result, interns typically must be paid at least the minimum wage and overtime compensation for hours worked over forty in a week. However, businesses that structure their internship programs like educational training programs, rather than employment, may do so without paying minimum wage and overtime to the interns. The DOL has developed six criteria that must be applied when making the determination of whether this educational exemption applies:
  1. The internship is similar to training which would be given in an educational environment, even though it includes actual operation of the facilities of the employer;
  2. The internship experience benefits the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
So long as all of the above factors are met, no employment situation is created under the FLSA, and the intern is exempt from the minimum wage and overtime requirements. Most often, businesses with internship programs are violating the FLSA without even realizing that their practices run afoul of the law. For example, if an intern is engaged in the operations of the employer or is performing productive work that results in the employer benefiting from the intern’s work, then the intern is really an employee. Other factors that make your intern an employee are:
  • Using interns as substitutes for regular employees or augmenting a workforce during specific time periods;
  • Using interns to perform work that would otherwise have been done by regular employees working extra hours or would have required the hiring of additional employees;
  • Supervising interns in the same manner and level as, and with the same personnel as, the employer’s regular workforce;
  • Using the intern for a “trial period” with the expectation that he or she will be hired on a permanent basis.
There are, however, methods to minimize the risk, and make your company’s unpaid internship structure more defensible, if challenged. The business should structure the internship so that it resembles and revolves around an academic experience. The intern should not be taking job opportunities away from current or potential employees. If the internship provides the individual with skills that can be applied to multiple jobs, the more likely it is to be viewed as training rather than employment. The employer should provide job shadowing opportunities that allow the intern to learn certain functions under the close and constant supervision of regular employees, but require the intern to perform minimal actual work. The internship also should be set for a fixed period determined prior to the outset of the internship rather than a “trial period” for individuals beginning employment. Clearly, education is the key. Under the above guidelines, “for-profit” sector employers who wish to offer unpaid internships must be sure that their interns are being educated, and that the business is not gaining a benefit from free, productive intern-generated work. If you require more information please contact Dena B. Calo. THIS CLIENT ADVISORY IS FOR INFORMATIONAL PURPOSES ONLY, AND SHALL NOT BE CONSIDERED AS LEGAL ADVICE.