To Pay or Not to Pay? The Test for the Unpaid Intern

by Nexsen Pruet, PLLC
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As the end of another academic year approaches, college students across the country are seeking summer employment opportunities.  As a result, your organization may soon be faced with the question of whether to hire summer interns.  Sure, you could use the extra hands to help out – but do you really have to pay them?  After all, the company would be providing an invaluable learning experience and on-the-job training to high school and college students, while receiving little back in “corporate gains.”  But before you start employing “free” labor, it is important to understand what the U.S. Department of Labor (DOL) has to say about for-profit employers paying their interns.

In 2010, the DOL issued guidelines concerning unpaid internships.  Based on the test set forth by the department, an intern will be considered an “employee” for purposes of wage and hour laws – including minimum wage and overtime pay requirements – unless these six criteria are met:

  1. The internship 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 receives 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 internship.

Each of the above criteria must be met to exclude an intern from the definition of an “employee” for purposes of the Fair Labor Standards Act (FLSA).  Failure to properly classify and pay an intern could result in dire consequences for the hiring employer.  An intern not properly paid according to the DOL’s guidelines may bring an action against his or her employer and be awarded back wages and overtime pay (which could be doubled) along with attorneys’ fees.

In fact, actions brought by former unpaid interns are becoming more common.  Since September 2011, at least three high-profile class-action lawsuits have been filed on behalf of unpaid interns alleging wage and hour violations against Fox Searchlight Pictures, Inc., the Hearst Corp., and Charlie Rose, Inc. 

The DOL’s 2010 guidelines specifically apply to “for-profit” employers, and it has not yet issued any guidelines on unpaid interns in the public or non-profit sector.  However, the department noted in the 2010 guidelines that unpaid internships in the public and non-profit sectors are generally permissible where the intern volunteers without the expec- tation of pay.

The FLSA provides a special exception for individuals who volunteer time to religious, charitable, civic or humanitarian purposes.  Such individuals may give their time freely without compensation.  When determining whether a volunteer is exempt from the FLSA, the DOL considers the following:

  • The nature of the entity receiving the services;
  • Whether the activity is less than a full-time occupation;
  • Whether regular employees are displaced;
  • Whether the services are offered freely; and,
  • Whether the work is typically associated with volunteer work

The DOL makes the important distinction that individuals volunteering in a non-profit commercial setting that serves the public (i.e., restaurants or retail stores) are not exempt from the FLSA.   

Given the DOL’s interest in this issue and the rising number of lawsuits being brought by interns, it would be wise to have any unpaid internship program reviewed for compliance, regardless of whether your organization is for-profit or non-profit.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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