Although the summer internship season is coming to an end, it is never a bad time to evaluate your organization’s employment practices, and unpaid internships are no exception. Unpaid interns can gain valuable, real world experience (tremendously helpful in a sluggish and increasingly competitive job market), and employers often receive something valuable in return: free labor. The only problem with this arrangement is that employers who offer unpaid internships are probably violating federal wage and hour laws, something Charlie Rose is learning the hard way.
Not all unpaid internships are affected. Those in the public or private non-profit sectors are generally permissible, as are situations where individuals volunteer their time for religious, charitable, civic, or humanitarian causes. Internships in the for-profit private sector, however, are another matter.
The Fair Labor Standards Act (“FLSA”) requires employers to pay non-exempt employees a minimum wage and overtime for any hours worked over 40 in a workweek. An intern in the for-profit private sector is no different, unless his internship meets the requirements described below qualifying it as “training” rather than “employment.”
Employers can avoid wage and hour violations for using unpaid interns by meeting six requirements. Keep in mind that while some courts have treated these as factors to consider, the Department of Labor takes the position that an employer must meet all of these requirements to keep its unpaid internships legal.
1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment.
The more an internship provides an individual with skills that are transferrable to other employers or industries, rather than the employer’s own operations, the more likely it will be viewed as training. Similarly, when an internship is structured around a classroom or academic experience, as opposed to an employer’s actual operations, it is more likely to be viewed as an extension of the intern’s educational experience. To meet this requirement, employers could allow interns to observe different department and employee functions within the organization, regularly speak to interns about the business in a classroom-type setting, or create projects for interns that simulate (but do not involve) the actual work of the business.
College internship programs that exercise supervision over students’ experiences are good examples of the type of educational experience to which the Department of Labor is referring and may be a good place for employers to find interns. However, just because an internship is affiliated with a college internship program does not automatically mean your organization can avoid paying minimum and overtime wages. Employers still must meet all the other requirements.
2. The internship experience is for the benefit of the intern.
It is generally easy for employers to meet this requirement because providing an intern the opportunity to perform real world tasks benefits the intern through the development of new and useful skills. Be careful, however; employers who receive a benefit in return by using an intern to perform productive work may risk rendering their internship illegal.
3. The intern does not displace regular employees, but works under close supervision of existing staff.
If an employer uses interns as substitutes for regular workers or to increase its workforce during busy seasons, those interns need to be paid a minimum wage. In other words, if the employer would have hired other employees or required its existing employees to work additional hours but-for the presence of interns, then the interns will likely be viewed as employees. Also, interns who receive the same level of supervision as regular employees are more likely to be treated as regular employees for purposes of the FLSA. Conversely, interns who simply observe or shadow regular employees are less likely to be considered employees themselves.
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.
This is where employers can quickly run into trouble. Interns clearly derive a benefit from performing actual work for an employer, but the Department of Labor’s position on this requirement is clear: “if the interns are engaged in the operations of the employer or are performing productive work (for example, filing, performing other clerical work, or assisting customers), then the fact they may be receiving some benefits in the form of a new skill or improved work habits will not exclude them from the FLSA’s minimum wage and overtime requirements because the employer benefits from the intern’s work.”
On the other hand, if an employer provides job shadowing opportunities to an intern, under the close and constant supervision of a regular employee, and the intern does little or no work, then it is much less likely the intern will be viewed as an employee. To be sure, this approach is inefficient; however, meeting this requirement often means not just avoiding a benefit to your business, but actually placing a burden on it.
5. The intern is not necessarily entitled to a job at the conclusion of the internship.
The internship should be for a fixed duration, established prior to its start. Do not use unpaid internships as a trial period for testing out potential new employees. If an individual is placed on a trial period with the expectation of employment following that period, that individual would generally be considered an employee and need to be paid.
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
Employers can ensure the terms of an internship are clear, including the lack of compensation, but putting those terms in writing and requiring the intern to sign-off on those terms.
As you consider these requirements, it is helpful to keep in mind the reasons you created your internship program in the first place. Are your motivations consistent with these requirements? How you answer that question may help you determine the legality of your unpaid internships.
If you are still unsure whether your organization’s unpaid internship program is in compliance with federal law—and according to the Department of Labor, few are—then it may be time to consider either paying your interns at least the minimum wage or ending your internship program all together. In the end, either course of action will be less expensive than defending a lawsuit.