Media Law Bulletin -- November 2012: On the Job: The High Cost of Some Unpaid Internships

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[author: Gail Kavanagh]

She’s studying journalism on her way to a career in fashion publishing.  Knowing it is almost impossible to get a job in the industry without experience, she was thrilled to be selected for an internship at one of the country’s top fashion magazines.  It’s an unpaid position, but just think of the training and experience she’ll get to help her land that first paying job!

Four months later, the experience she’s gained consists of covering the phones while the receptionist is on break, going for coffee runs, and organizing the fashion closet, often for more than 10 hours a day.  And all without pay.

No, it’s not a remake of “The Devil Wears Prada” or an episode of “Ugly Betty.”  It is, though, a situation that can lead to a lawsuit for violations of minimum wage and overtime laws under the federal Fair Labor Standards Act (FLSA) and its state law counterparts.

An internship – paid or unpaid – is a common early step along the career pathway in a variety of media-related industries.  Because the competition is stiff for entry-level jobs in television, film, publishing and fashion, for example, there is a premium placed on real-world, on-the-job experience.  A well-designed internship can provide the experience necessary to land that dream job.  A poorly designed internship program can be a nightmare for both the intern and the employer.

Several recent cases against employers in the film, publishing and broadcast industries highlight the potential pitfalls of unpaid internships.  In each case, a former unpaid intern (suing on his or her own behalf and seeking to represent a class of other interns) alleges that he or she received minimal training and experience, and performed the job functions of an entry-level employee without being paid minimum wages or overtime pay.

Although some have declared this recent spate of lawsuits the “beginning of the end” for unpaid internships, that need not be the case.  The benefits of such internships to the individual intern and to the industry, which naturally benefits from the development and training of new talent, can be realized by adherence to guidelines that establish a narrow exception to the definition of “employment."

While every “employee” is required under the FLSA to be paid minimum wages and overtime, the FLSA provides a narrow exception to the definition of “employment” for an internship that is a bona fide workplace educational opportunity.  The U.S. Department of Labor’s Wage and Hour Division provides the following list of six essential criteria that must be met in order for an unpaid internship to be deemed exempt from the federal wage and hours laws:   

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training that would be given in an educational environment;

2. The internship experience is for the benefit of the intern;

3. The intern does not displace regular employees, but works under close supervision of existing staff;

4. The employer 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. Both parties understand that the intern is not entitled to wages for the time spent in the internship.

If all of these factors are met, the internship is not an employment relationship under the FLSA, and the act’s minimum wage and overtime provisions do not apply to the intern.  The FLSA exclusion from the definition of “employment” is a narrow one and requires all of the above factors.  In addition, state wage and hour laws may vary and impose additional restrictions or criteria affecting internships.

Of these six factors, three tend most often to be the subject of dispute:

            Similarity to an Education Environment

The more an unpaid internship in a for-profit business resembles a regular academic experience, and the more it is tailored to primarily benefit the intern rather than the business, the more likely it will be deemed an extension of the educational process rather than employment.  Where the internship provides training designed to develop skills that will be useful in multiple employment settings, rather than in a single employer’s operations, and where the intern does not perform the routine work of the employer’s business on a regular basis, the internship is likely to be viewed as primarily an educational opportunity.  On the other hand, if the intern is regularly engaged in the employer’s operations, performing tasks upon which the business relies (such as filing, assisting customers or performing clerical tasks), then the arrangement is more likely to be deemed employment even if the intern is developing some new skills or improved work habits.

            Displacement and Supervision

If an intern is used as a substitute for a regular worker – that is, if the employer would have hired more people or increased the work hours of existing employees to do the work performed by the intern – then the intern is likely to be deemed an employee entitled to minimum wage and overtime compensation.  Likewise, if the intern performs work with the same amount of supervision as the employer would give to its regular employees, and then the intern will probably be deemed an employee.  Conversely, where the intern performs little productive work but is given an opportunity to shadow other employees and to learn certain skills under the direct and close supervision of regular employees, the internship is more likely to be viewed as a bona fide educational experience rather than employment. 

            Job Entitlement

A valid unpaid internship will be of limited duration, defined at the outset, and will not be used by the employer as a trial period for potential further employment.  Where there is an expectation that the internship may lead to regular employment, the internship itself is more likely to be deemed employment.

Of course, several of the criteria provided by the Department of Labor are subjective and depend on the overall nature of the internship experience.  In order to best ensure a lawful internship program, an employer should establish its own written policies for the program including how, when and by whom training will be provided, what type of training will be encompassed in the internship, and what types of experience the intern is expected to gain.  The employer and the intern should agree in writing to the scope and goals of the internship, that the internship is not necessarily a prelude to employment and that the intern does not expect to be paid.  As with all business relationships, clear written guidelines and acknowledgement of the parties’ expectations can substantially reduce the risk of disputes regarding the internship.