The Wage and Hour Movement Against Internship Programs

Lawsuits brought by interns are potentially becoming the next big trend in wage and hour litigation. As we discussed in a recent Alert in December of 2012, although it may be tempting for employers to tap into the large pool of unemployed or underemployed college students or recent college graduates who are willing to work as interns, employers should take the time to evaluate their programs to ensure that they do not run afoul of the Fair Labor Standards Act (“FLSA”) and its state law counterparts.

Since September of 2011, a number of class action lawsuits have been filed in federal and state courts in New York alleging federal and/or state wage and hour violations on behalf of unpaid interns against high-profile companies. Fox Searchlight Pictures, Inc., the Hearst Corp., and the Charlie Rose show and its production company, Charlie Rose, Inc. all have been sued by unpaid interns claiming minimum wage violations. In keeping with this apparently growing trend, a former unpaid intern of Elite Model Management Corp. filed a proposed $50 million class action against the company less than 2 weeks ago, in which it is claimed that the agency violates wage laws by requiring its interns to do the work of employees for pay. Although Charlie Rose and his production company have settled the class action lawsuit brought against it by a former unpaid intern and agreed to pay $250,000 in back wages to a potential class of 189 interns, the other lawsuits are ongoing.
Moreover, employers who have paid their interns something should not be lulled into a feeling of security, a fact illustrated by a complaint just filed in late December of 2012 in New York federal court by a former Hamilton College athletic department intern maintaining that the school intentionally misclassified him and other interns as exempt from minimum wages and overtime pay and used low-paid interns to provide necessary labor. This recent lawsuit presents a new twist in this emerging area, in that the former intern plaintiff did receive some payment for his work, although the complaint alleges that the sum he was paid was not enough to meet the minimum wage in light of the number of hours he worked.
Workplace experts reportedly have stated that hundreds of thousands of young Americans work as unpaid interns each year as they seek to gain real world experience and get an “in” with desired employers and in preferred professions. Simply stated, interning has become the norm – a survey of the class of 2012 by the National Association of Colleges and Employers found that a majority had graduated with an internship or cooperative education experience. However, as the recent lawsuits demonstrate, some interns and labor advocates assert that many employers who use unpaid or underpaid interns are violating federal and state laws by, among other things, using those interns to do the jobs of other workers and by not providing a true educational experience.
Although the FLSA permits unpaid internships, such are allowed only if they satisfy strict criteria established by the United States Department of Labor (“DOL”). As set forth in our prior Alert in December of 2012, the DOL currently uses the following six-factor test for analyzing whether participants in a private, for-profit employers’ internship program are exempt from the FLSA’s minimum wage and overtime requirements: the internship must be similar to training which would be given in an educational environment; the internship must primarily be for the benefit of the intern; the intern must not displace regular employees and must work under the close supervision of existing staff; the employer can derive no immediate advantage from the activities of the intern and, on occasion, its operation may be impeded by the intern; the intern cannot necessarily be entitled to a job at the conclusion of the internship; and the employer and the intern must understand that the intern is not entitled to wages. (These factors are set forth and discussed in an April 2010 DOL “fact sheet,” which is available at: http://www.dol.gov/whd/regs/compliance/whdfs71.htm).
While it is not clear whether this six-factor test applies to internships in the non-profit sector, given the litigation proliferating in this area, non-profit entities would be well advised to also evaluate their internship programs using these criteria until the DOL speaks directly to this issue.
Whereas unpaid internships can provide valuable access to and experience in interesting businesses and industries, these programs must be carefully designed to avoid possible legal traps, particularly in light of the DOL’s interest in this area and the ever increasing number of private lawsuits being initiated by former interns. Given the growing uncertainty with respect to unpaid and paid internships, employers would be well served to have even the most seemingly simple program reviewed by legal counsel for compliance.