Businesses: Beware of Hiring Unpaid Interns

» Posted in News & Resources

Summer is almost here and many students looking to get their foot in the door of a certain industry and/or just gain some real world experience are willing to work as an unpaid intern. Employers may jump at the chance to get some enthusiastic workers at a great price: free! But employers in the for-profit arena need to be very careful: calling a worker an “intern” when they are really acting more as an employee can have serious and expensive consequences for the employer.

Three recent cases have drawn attention to the issue of unpaid interns. A class of interns sued Fox Searchlight for their unpaid work on the movie Black Swan; a class action lawsuit was filed against the Hearst Corporation on behalf of more than 100 unpaid interns at various Hearst publications who are now seeking wages; and an unpaid intern recently sued PBS host Charlie Rose and his production company, claiming that she was not paid for the work she did.

The Federal Fair Labor Standards Act (FLSA) and most states, including California, require that an employee be paid a minimum wage for all hours worked and overtime compensation. There is an exception under the FLSA for unpaid interns but it is very narrowly drawn. In order to be classified as a trainee the unpaid intern must meet all of the following criteria:

• 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;

• The internship experience is for the benefit of the intern;

• The intern does not displace regular employees, but works under close supervision of existing staff;

• 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;

• The intern is not necessarily entitled to a job at the conclusion of the internship; and

• The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If the internship fails to meet even one of the above criteria then the intern is an employee and must be paid a minimum wage and overtime. Failing to properly pay interns is costly. It can include liability for unpaid wages, including overtime and any missed rest and meal periods; liability for unpaid employment-related taxes and other fines and/or penalties owed to governmental agencies; liability for workers comp; and attorneys’ fees if the intern’s claim for unpaid wages is successful.

What steps can a for-profit employer take to help mitigate the risk of having an intern be deemed an employee?

• Carefully review your hiring practices and policies regarding unpaid interns. Make sure your managers are aware of the FLSA criteria and any other applicable state law before engaging an unpaid intern.

• Limit the unpaid internships to the more traditional academic credit scenario. The Department of Labor (DOL) has stated that “in the typical externship or internship program, where the work activities are simply an extension of the student’s academic program, [the FLSA] factors often are met and an employer-employee relationship does not exist.” Factors such as whether the intern is enrolled in school, receiving academic credit for his/her participation in the program, and whether the work is required for a degree all help point toward a legitimate internship.

• Be very clear regarding the nature of the intern’s work. According to the DOL employers receive “immediate advantage” from work that interns typically perform such as answering phones, assisting customers, etc. An intern should be limited to “job shadowing” existing employees, not performing the tasks those employees might otherwise do.

• Do not use interns to displace regular employees in the schedule. Interns should work alongside regular employees, never in place of them.

• An internship should not serve as a trial or probationary period prior to permanent employment. There should not be a promise of a job after the internship.

• Limit the internship to a specific duration.

Clearly, unpaid internships are a hot topic right now and subject to scrutiny by federal and state labor authorities. It’s still possible to have properly classified unpaid interns but employers are advised to proceed carefully to avoid an expensive misstep.