Unpaid Internships may be more costly than you may think

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What do fashion designer Norma Kamali, journalist Charlie Rose, Elite Model Management Corporation, and the Hearst Corporation have in common?  All have been sued by former unpaid interns, claiming that their unpaid status violated the Fair Labor Standards Act.

With the summer internship season upon us, plaintiffs’ lawyers are gearing up to challenge unpaid internships (see www.internjustice.com).  Accordingly, we thought it appropriate to offer a refresher on the elements of a compliant unpaid internship program. 

In the for-profit arena, the Department of Labor and some states have established guidance, to determine whether an internship may be unpaid.  The DOL looks at the following six criteria and, if even one is not met, then the worker would be entitled to at least minimum wage under the Fair Labor Standards Act, as well as time and-a-half for hours worked in excess of forty hours per week.

  • The internship, even though it includes actual operation of the employer’s facilities, is similar to training that would be given in school.
  • The internship experience is for the benefit of the student.
  • The intern does not displace regular employees, but works under the close observation of a regular employee.
  • The employer provides the training and derives no immediate advantage from the activities of the intern. Occasionally, the operations may actually be impeded.
  • The intern is not necessarily entitled to a job at the conclusion of the internship.
  • The employer and the intern understand that the intern is not entitled to wages for the time in the internship.  

According to a fact sheet published by the DOL, the more an internship program is structured around a classroom or academic experience as opposed to the employer’s actual operations, and the more the internship provides the individual with skills that can be used in multiple employment settings, as opposed to skills particular to one employer’s operation, the more likely the intern would be viewed as receiving training. Under these circumstances the intern does not perform the routine work of the business on a regular and recurring basis, and the business is not dependent upon the work of the intern.  In this circumstance, it is likely the DOL would find the workers to be properly excluded from the FLSA’s minimum wage and overtime requirements.

Conversely, if an employer uses interns as substitutes for regular workers, or would have hired additional employees or required existing staff to work more hours had the interns not performed the work, these interns should be paid at least the minimum wage and overtime compensation for hours worked over forty in a workweek.

Unpaid internships in the public sector and for non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible.

Whether a particular position qualifies as an unpaid internship under the law is a fact-specific inquiry, and errors in classification can be very costly (see Charlie Rose settlement).  To avoid these errors, please contact your employment counsel for help.