For years businesses, small and large, have hired summer interns. Some of those programs have been paid, while many are unpaid. But now unpaid internships are facing increasing scrutiny as lawsuits emerge across the country.
An internship program can be hugely beneficial. They are an excellent way to recruit new talent, and provides companies with a chance to assess a potential future hire without a long term commitment. Plus interns can pick up the slack during the summer doldrums.
Many companies justify unpaid internship programs by treating them like apprenticeships. The interns are unpaid, yet gain invaluable knowledge and experience, and a possible future offer. However, this model is increasingly under threat. In recent years, there have been numerous law suits filed by unpaid interns who claim that they should have been compensated for their work. This article will seek to clarify in what situations interns must be paid, and the requirements for having an unpaid internship program.
The Fair Labor Standards Act (FLSA) is a federal law that requires employees be compensated at an hourly rate of no less than $7.25 (and that minimum is higher in many states). The minimum wage requirements under the FLSA and state laws are not waivable. An employee cannot agree to be paid less than minimum wage. Thus the question of whether an unpaid internship is permissible is whether the intern is an employee or a “trainee”. If the intern is deemed a trainee, they need not be compensated, however the test to determine trainee status is rigorous.
The FLSA defines the term “employ” as “to suffer or permit to work.” Meaning that if the intern is doing activities that traditionally qualify as “work,” they must be compensated. In other words the internship program must be purely educational, and for the benefit of the intern. The U.S. Department of Labor has set forth a six part test to determine whether an unpaid internship program is valid: (1) The internship, even though it includes actual operation at 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 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.
As a whole, while the intern can actually perform some duties of regular employees, that work must be purely for educational reasons, under the direction of employees, and not be for the benefit of the company. To clarify matters consider the following examples:
Company A hires a number of unpaid interns for the summer. In the first week of the program interns are assigned to individual departments. After receiving a week of intensive training at their assigned departments they begin working. The work interns do is largely independent, however, the company makes it clear that interns are always welcome to ask for help from any regular employee. If the intern satisfactorily completes the program the intern is offered a full time position after graduation.
Company B also hires unpaid interns for the summer. Interns are divided into groups after completing a week long orientation. The different groups then spend a week at a department before rotating to another department. During rotations interns shadow employees. At the end of each week interns are allowed to operate at a work station under the direct supervision of an employee. At the conclusion of the program, applicants are encouraged to apply for a full-time position.
Note the difference between Company A and Company B. Company A, while tailoring their program as educational, and encouraging interns to ask for help, would be in violation of wage and hour laws. The interns are performing the same repetitive work week after week to the point where they are essentially doing the work of an employee. By the second or third week it could not be argued that what they are doing is educational and for the sole benefit of the intern. However, Company B is in better shape. Because interns rotate and are mostly shadowing employee, their program seems far more educational.
However, as a word of caution, any company that has an unpaid internship program is taking a calculated risk. Lawsuits from unpaid interns are increasing dramatically. Thus, if your company has an unpaid internship program you must make sure that it conforms with the requirements of federal and state law. If you have any questions regarding your internship program, whether paid or unpaid, please contact one of our HR specialists at Portnoy, Messinger, Pearl & Associates at (516) 921-3400.