As employers well know, unpaid internships are commonplace in many industries, giving employers a few more hands on deck and providing a work experience for interns to include on their resumes. But gone are the days of casually arranging for a college student or recent graduate to work for the company without pay under the guise of providing them with experience in their desired field of employment.
High-profile lawsuits and a push by intern advocacy and fair-pay groups have gotten significant attention in the media in recent months. Their mission: to recover pay for "interns" who actually are in an employment relationship under the law with for-profit companies.
A federal judge in New York held recently that Fox Searchlight Pictures violated federal and state minimum wage laws when it failed to pay two "interns" whose tasks had no educational value and appeared to be solely for the benefit of the employer. (That case is now on appeal.) Similar lawsuits seeking pay for workers inappropriately classified as interns have been filed against Conde Nast, Hearst Magazines, the website Gawker and Atlantic Records, and claims have been settled by Charlie Rose’s production company and by fashion designer Norma Kamali.
Will the threat of lawsuits like these mark the end of the unpaid internship? It certainly doesn’t have to, if employers diligently comply with strict federal and state requirements related to the structuring of unpaid internship programs.
The standards for unpaid internship programs in for-profit companies are set forth in Fair Labor Standards Act guidance and in state Department of Labor guidance, based on the Supreme Court’s 1947 opinion in Walling v. Portland Terminal Co. In that case, the court concluded that railroad trainees were not employees within the meaning of the FLSA. Any unpaid internship in New York must satisfy six federal factors and five additional New York factors to prevent the employer from creating an employment relationship with the intern.
The federal factors are:
The internship, even though it includes actual operation in the employer’s facilities, is similar to training that 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 intern’s activities, 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.
The New York factors are:
Any clinical training is performed under the supervision and direction of individuals knowledgeable and experienced in the trainee’s activities;
The trainees or students do not receive employee benefits;
The training is general, qualifies the trainees or students to work in any similar business, and is not designed specifically for a job with the employer that offers the program;
The screening process for the internship is not the same as for employment and does not appear to be for that purpose, but involves only criteria relevant for admission to an independent educational program; and
Advertisements, postings or solicitations for the program clearly discuss education or training, rather than employment, although employers may indicate that qualified graduates may be considered for employment.
The federal guidance gives an idea of what a permissible intern-company relationship should look like: "If the interns are engaged in the operations of the employer or are performing productive work (for example, filing, performing other clerical work or assisting customers), then the fact that they may be receiving some benefits in the form of a new skill or improved work habits will not exclude them from the FLSA’s minimum wage and overtime requirements because the employer benefits from the interns’ work." The Fox Searchlight appeal to the 2nd U.S. Circuit Court of Appeals should provide additional insight in the coming months.
The increased awareness among interns, wage-and-hour regulators and plaintiffs’ lawyers means that private employers should continually monitor and evaluate their unpaid internship programs to bring them into compliance with federal and state law. But employers should not let rhetoric scare them away from offering internships that legitimately provide learning experiences in the workplace for the benefit of the interns. Implementing a legal unpaid internship program takes work, but it can be done if employers take heed of applicable laws and guidance.
James Beyer is an associate in the labor and employment law practice group at Harris Beach PLLC.
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