Over the past five years, a wake-up call for employers who use unpaid interns has been brewing.
Triggered in a 2012 case against Harper’s Bazaar, and further publicized in 2013 by a verdict against Fox Searchlight for the 2010 film ‘Black Swan’, the proper use of unpaid interns has become a matter of close legal scrutiny, and hence increasing importance for employers.
In the ‘Black Swan’ decision it was ruled that Fox Searchlight should have paid two interns on the film because they were essentially regular employees. The judge noted that these internships did not foster an educational environment and that the studio received the benefits of the work.
How do employers avoid the risk of finding themselves on the defense in their use of free interns?
Reviewing and updating internship programs and policies to comply with federal and state standards is a critical first step. To avoid liability, employers can protect themselves with a clear understanding of the definitions of “interns & trainees” v. “employees” as set by the U.S. Department of Labor (DOL).
Viewing unpaid internships as a way to accomplish work tasks rather than as educational programs is the wrong approach as there is no specific exception for interns from the Fair Labor Standards Act’s guidelines for minimum wage and overtime pay (FLSA). Instead, the DOL provides a narrow definition for “trainees” and if an intern qualifies, minimum wage and overtime exemptions may take place.
How does an employer determine if a student qualifies as an intern or as a trainee?
Interns & Trainees:
Whether trainees or students are employees of an employer under the FLSA will depend upon all of the circumstances surrounding their activities on the premises of the employer.
If all of the following factors are satisfied, the trainees or students are not employees within the meaning of the Act, as defined by the Wage & Hour Division of the US DOL Fact Sheet #71:
- The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school;
- The training is for the benefit of the trainees or students;
- The trainees or students do not displace regular employees, but work under close supervision;
- The employer that provides the training receives no immediate advantage from the activities of the trainees or students and, on occasion, his operations may even be impeded;
- The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and
- The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.
If an employer’s internship program meets all of the factors listed above, then the intern is not considered an “employee” under the FLSA and the Act’s minimum wage and overtime obligations do not apply to the intern.
The critical factor is that the training is for the benefit of the trainees or students.
What does the DOL place the most weight on in making an employee or intern determination?
Internships that increase the intern’s chances of being hired in the job market or situations where students receive academic credit toward graduation. Typically, unpaid interns who fall into the category of “trainees” mostly perform tasks that are useful only for training purposes and provide little to no benefit to the employer.
What specific practices can I engage in to protect myself from misclassification of my interns?
To help avoid misclassification as an employee:
- Adopt a policy that sets up strict supervision of interns and assigns a mentor.
- Train intern supervisors to actively participate with the interns.
- Document the training, monetary benefits and costs an intern brings to the company.
- As trainees or students are not entitled to a job at the end of the training, draft a written agreement with the intern stating that the intern should have no expectation of employment and should not presume any guarantee of employment after the internship. (That does not mean you cannot, or should not, hire them after an internship is completed if you have openings.)
- Draft a written agreement stating that payment for the intern’s services is neither intended nor expected during the internship to ensure the student is clear at the beginning of the relationship.
All of these steps support your intent to benefit the intern’s learning process and they set clear expectations for all involved.
The risk lies in not accepting that, as an employer, you cannot view internship or training programs as a path to free or inexpensive labor.
Like with any other employment practice, proactive vision, detailed planning, training, documentation, and execution will help to ensure that your organization can give back to your industry’s community by supporting internships. Done well, internships help to build your organization’s reputation, philanthropic efforts, culture & brand, and ultimately, your appeal to candidates in recruiting efforts.
If you wish to develop an internship program, but don’t know where to start, be sure to seek expertise from a qualified HR professional for assistance.