Quirky Question #204, Unpaid Internships

Question:

I am a Human Resources representative of an independent for-profit company that publishes multiple travel and vacation magazines.  Some of my company’s executives have expressed an interest in hiring interns for next summer and for a possible year-round program, if the program is successful.  Currently, we aren’t sure what we would like our interns to do exactly but one thing is clear – the company wants to save costs by having an unpaid internship program.  I am generally aware of recent litigation involving unpaid internships, but I am not sure what this means for my company and our potential unpaid internship program.  Can you provide some guidance?

Anwser: By  Gabrielle Wirth and Judy Sha

Gabrielle Wirth

Gabrielle Wirth

Judy Sha

Judy Sha

In light of recent court rulings enforcing federal and state wage and hour laws requiring employers to pay their interns, the days of unpaid internships are in sharp decline.  A federal judge in New York ruled that unpaid interns on the movie “Black Swan” were in fact employees not unpaid interns and should have received at least the minimum wage and were not valid unpaid interns under the Fair Labor Standards Act (“FLSA”) and New York labor laws. The judge also allowed a class-action suit to go forward against the Fox Entertainment Group, the parent company of the film’s production division. Many more lawsuits have followed in its wake, and the companies being sued operate in a wide range of intern-heavy industries, such as fashion, magazines (which is relevant to your company), and entertainment, to name a few.

 This recent rash of lawsuits by interns claiming to be misclassified should prompt for-profit employers, such as yours, to review their own policies and practices in regards to their existing or prospective internship programs to protect against the risk of future wage and hour liability under federal and states laws.

 The Department of Labor (“DOL”) has identified the following six criteria that all must be met for an individual to qualify as an intern with a  for-profit company:

1.  The internship 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 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 time spent in the internship.

Here is a link to the foregoing guidance from the DOL: http://www.dol.gov/whd/regs/compliance/whdfs71.htm.

If all of the factors listed above are met, an employment relationship does not exist under the FLSA, and the Act’s minimum wage and overtime provisions do not apply to the intern.  As you can guess, an accurate assessment of whether an internship can be unpaid depends upon all of the facts and circumstances of each program.  But practically, what does this all mean for private employers interested in running an unpaid internship program?

  • The focus of the internship program must be on the interns and the interns must be the sole beneficiary of the relationship.  Companies should assign interns      tasks that help them learn transferable skills, i.e. skills general in  nature and capable of being applied to similar functions in other companies or organizations.  While an indirect benefit to the  companies is okay, an intern should not be performing work that helps  displace employees or fill vacant positions.
  • Companies must provide  training that is similar and complementary to what is offered in academic  programs.
  • Companies should  communicate the expectations of the internship program with the interns  and receive written confirmation via a signed disclaimer that the interns  understand the following expectations: (1) interns are not entitled to a  job at the conclusion of the internship program, and (2) all parties understand the interns are not entitled to wages for the time spent in training.

In addition to the six guidelines set out by the U.S. Department of Labor, certain states, such as California and New York, apply additional criteria of their own to evaluate whether an internship may be unpaid.

As you can probably see by now, it is very difficult for a for-profit business, such as your company, to meet all of the legal requirements for an unpaid internship.  A truly legally compliant unpaid internship can be a burden on the employer, because the employer is essentially creating a program with training and assignments primarily for the benefit of the intern.  To be completely compliant with federal and state requirements on unpaid internships, businesses are almost required to host a vocational training program where they are teaching interns the business or industry, e.g., in your case, the magazine business/industry, (as opposed to the company’s specific processes or systems) while allowing them to work on only hypothetical situations, not on real projects that benefit the company.

If your company does not have the commitment or resources to create and maintain such a program, then it should seriously consider abandoning such an unpaid internship program altogether or pay its interns in compliance with federal and state wage and hour laws.  If your company does have the commitment and resources to provide a legitimate unpaid internship,  you should periodically monitor the interns’ activities to ensure the program is still meeting federal and state requirements.

Gabrielle Wirth

About Gabrielle Wirth

Employers turn to Gabrielle for guidance on how they can comply with the technical employment laws in California, Montana and nationwide while meeting their business needs. Her successful trial experience......

Dorsey & Whitney

About Dorsey & Whitney

Dorsey is a business law firm, applying a business perspective to clients' needs. We make it our first priority to know the context in which you do business - your......

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