Redefining “Intern” – Why an Unpaid Internship Program May be Risky Business

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This is a guest post from Gregory McGillivary and Robin Burroughs of the labor law firm of Woodley & McGillivary in Washington, D.C.

Although it is only October, the year 2013 may already be remembered as the year that ended unpaid internships.

While colleges and non-profits have sponsored unpaid internship programs for a long time, recently it seems as if unpaid internships are replacing entry-level jobs. There are many problems with this trend for both employers and potential interns. Over the past year, it has become clear that employers cannot ignore the potential legal cost of unpaid internship programs. 

In June, 2013, a New York federal court found that unpaid interns at Fox Searchlight were employees entitled to compensation under the Fair labor Standards Act and New York wage and hour laws. A flurry of other lawsuits followed against employers including Donna Karan International, Charlie Rose, NBC Universal, and Sean “Diddy” Combs’ company Bad Boy Entertainment.

Many of these cases date back to April 2010, when the U.S. Department of Labor (DOL) issued a fact sheet to attempt to clarify when the interns qualify for an exemption from compensation laws. The fact sheet states that the Fair Labor Standards Act (FLSA),the law that sets out federal minimum wage and overtime requirements, applies if an employer “suffers or permits work” from an individual. The DOL then set out six criteria which all must be met to exclude an internship from the FLSA:

  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;
  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 that provides the training derives no immediate advantage from the activities; and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled 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 time spent in the internship.

If any internship fails to meet any of these six tests, the employer is legally obligated to pay the intern for his work.

The Fox Searchlight case made the burden of this test clear: an internship must “provide something beyond on-the-job training that employees typically receive.” For example, it is not enough for an intern to learn things like how to show up for work on time and how the coffee maker works. The intern must get more than an opportunity to pad their resume with the fact that they interned at a particular place. For an intern to be exempt from compensation laws, the employer must be providing a specialized, rich educational experience in which the intern does not displace any other workers. The criteria are designed to allow an employer to run a short-term training  program for a specific craft which would operate as an alternative to vocational school. They are not designed to permit an employer to avoid paying an “intern” for an entry-level job.

Employers of unpaid interns attempt to defend their failure to pay by claiming that the interns “agreed” to perform the work for free. This argument is meritless. The law does not permit an individual to waive their right to be paid. It simply cannot be done.

There are special rules regarding internships for governments and non-profits under federal law which permit individuals to volunteer for unpaid internships. Unpaid internships are not permitted, except in the very narrow circumstances outlined above, for for-profit employers.

As Fox Searchlight and other recent lawsuits have shown, unpaid internships have a high cost. Under federal law, individuals wrongly classified as unpaid interns are entitled to their unpaid wages as well as an equal amount of money in “liquidated damages.” More than that, the law requires employers to pay the successful intern’s attorney’s fees and costs. All of this is on top of what a company would pay their own attorney to try and defend the lawsuit. In addition to these federal protections, some states have stricter employment laws with longer statutes of limitations and greater penalties.

Unpaid internships pose legal risks beyond a potential FLSA lawsuit. Interns may not be covered under many basic workplace protection laws, like workers’ compensation. When an employee is injured on the job, he usually must seek workers’ compensation rather than sue. If he is not considered an employee, an unpaid intern may have the right to sue instead under personal injury laws. This could be much more expensive for the employer than a worker’s compensation claim would be.

Moving into the new normal doesn’t have to be bad news for employers or their bottom line. The law requires employers to pay the minimum wage. Most internships only last a few months, so this would be a relatively small amount of money. In return, employers gain a whole host of benefits when they pay their interns, including more productive employees, a more diverse workforce, and employee loyalty. When companies pay their interns, both sides win appreciable benefits.

The information provided in this blog post is intended to be general in nature. It is not intended to provide legal advice specific to your unique circumstances. The law changes frequently, and is different from jurisdiction to jurisdiction. If you require legal advice, consult with a competent attorney licensed to practice law in your jurisdiction. No attorney-client relationship is formed or should be implied by this post or comments to this post.

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Nathan Parcells

Nathan Parcells is VP of Marketing and co-founder of Looksharp. He has spent the past decade helping students launch their career, researching best practices for hiring millennials (including running Looksharp's annual "State of College Hiring") and sharing these insights with employers. Nathan's work has been featured in Forbes, TechCrunch, Business Insider and more. Outside of work, Nathan is an avid rock climber, back packer and Bob Dylan fan.