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The AR Group

The Unpaid Intern. Luxury or Liability?

By Christine Wilkinson

As high school, college, and even graduate students celebrate the close of the school year, many are intent on putting their summer to good use by gaining exposure to and experiencing the working world. While a paid summer job would be ideal for most, given the tight job market and unsettled economy, not all can secure paying work. In fact, many students on school break, are primarily focused on securing real-life experience in an area of interest or an area they have studied. Some recognize that they have no real experience or ?value? to offer an employer but seek the opportunity to effectively ?learn on the job? and in so doing increase the probability of securing paid work at a later date. Private-for-profit employers, meanwhile, often recognize the value in having another pair of hands around and if those hands can come at little or no adverse impact to the bottom line, they are willing to engage and support such ambitions.1? Unpaid internship programs, however, can prove to be a dangerous venture for the unwary employer because using unpaid labor, even if the laborer agrees to the arrangement may violate the Fair Labor Standards Act (?FLSA?).

The FLSA, frequently referred to as wage and hour law, requires employers to pay non-exempt employees a federally mandated minimum wage for all hours worked and time-and-a-half pay for all hours worked more than 40 during the workweek. It is important to know that the FLSA is a federal law that creates a minimum standard that must be adhered to. Many states have passed their own ?state versions? of wage and hour regulations and some of those states (like California) have imposed even stricter, more onerous, standards. As it relates to the FLSA, plaintiff?s lawyers are hot on the trail of finding a gold mine, one group has even created a website to promote further interest (see, http://unpaidinternslawsuit.com/); meanwhile, The Department of Justice has begun a concerted effort to crack down on employers who improperly rely on unpaid interns. Notably, Colorado?s wage and hour laws largely mirror the FLSA and so do not, as a practical matter, increase the compliance burden.

Fundamentally, employers need to understand that participants in unpaid internship programs are increasingly electing to sue former ?employers? for violating the FLSA. Just recently, several high-profile failures to pay interns or apprentices received considerable press. These included Fox Searchlight?s failure to pay former interns that gladly accepted unpaid internships to work on the Black Swan film set; publishing giant Hearst Corporation?s failure to pay an intern that worked at Harper?s Bazaar magazine; and fashion designer Norma Kamali?s similar failure to pay an ?apprentice.? The unpaid interns are seeking certification of a class action for the alleged FLSA violations and back pay for hours worked, plus statutory damages. In fact, a judge from the Southern District of New York, just this week issued a decision largely favorable to three of the four plaintiff interns who brought claims against Fox Searchlight Pictures for violation of the FLSA and New York Labor Law by failing to pay required wages for work they performed while putatively working as unpaid interns. (The decision can be found here: http://www.nysd.uscourts.gov/cases/show.php?db=special&id=300) Notably, the court used the Department of Labor?s six-factor test for permissible unpaid internships for ?for-profit companies?, when it determined that the interns working on ?Black Swan? were improperly denied wages. The Court focused on the fact that the interns ? who performed menial tasks such as photocopying, drafting cover letters, fetching coffee, making deliveries and other administrative duties ? displaced paid workers. Apparently, testimony revealed that when one intern cut back his schedule, another intern was hired to pick up the slack, and that if another intern was not available, then a paid production assistant would be assigned or hired. Thus, the court reasoned that the work performed by the interns was for the company?s benefit, not the interns?, and payment was therefore required under both federal and state law.

Obviously, Fox, Hearst, and Norma Kamali are large, sophisticated entities, if not empires. That the likes of them are finding themselves embroiled in litigation over the use of unpaid interns, is telling and illustrates the importance of taking the time to properly and thoughtfully construct an unpaid internship program. At base, it is critical to understand that employers must comply with the FLSA wage and hour requirements, particularly if the intern performs work that otherwise would be performed by a paid employee. In most cases, it is important to assess the nature of the role to be occupied by an intern. To determine if an intern?s role is properly classified as that of an ?employee? one should assess whether:

1. ?The internship is akin to the kind of learning that one might otherwise receive in an educational environment;

2. ?The internship experience is for the benefit of the intern;

3. ?The intern does not displace regular employees but instead works under close supervision of existing staff;

4. ?The employer providing the training derives no immediate advantage from the activities of the intern and on occasions?its operations

? ? ? may actually be?impeded;

5. ?The internship and relationship is not conditioned on or understood to result in job placement;

6. ?The employer and the intern understand that the intern is not entitled to wages for the time spent under the internship program.

If all of these six factors are satisfied in the affirmative, it is likely that the intern will not be considered an employee, and the company need not comply with the FLSA?s minimum wage and overtime provisions.

 

Developing a compliant internship program:

Employers are encouraged to focus the internship around an academic experience, and not their own routine operations. Remember the internship experience should not involve efforts to train interns to do work that is only relevant to the needs of a particular employer. Rather, the internship should be designed to further facilitate skill development achieved through working on projects routinely encountered in the workplace. Employers should also take care in how interns are ?supervised? or ?managed.? That is, although employers must provide close and constant supervision ? the supervision should be conducted in an effort to facilitate the intern?s development and is thus primarily a teaching tool. While supervision of employees may involve an element of teaching (or training), it is not an employer?s primary focus, but rather an effort to ensure that employees stay on task and perform to company standards..

Employers must also ensure that the work being done by interns does not displace regular employees or enable the employer to avoid hiring needs. In order to avoid this issue, employers are encouraged to examine the extent to which they would have hired additional employees had an intern not been engaged. Similarly, employers should create intern onboarding programs that are unique to the internship program and not a mere duplication of the onboarding or training that is offered to employees. So, for example, an internship structured as a job-shadowing program in which an intern observes an employee while being supervised by an employee, is likely to be deemed an educational experience.

Fixed duration internships are generally a good idea especially where employers undertake efforts to ensure that they do not overtly or covertly suggest that the internship is a trial period before employment or that an employment relationship will result. Thus, if an intern works for an employer in a trial period with the expectation that he or she will eventually be hired as a permanent employee, the intern is likely to be deemed an employee under the FLSA.

 

Smart Tip:

The FLSA is one of the most notoriously pro-employee laws ever passed. It is very difficult even for well-intentioned and compliant employers to defend against FLSA claims and lawsuits. As a result, and in light of the current trend of unpaid interns suing for wages and benefits, every employer is wise to examine its intern program structure very closely, and if necessary have it reviewed by an attorney to ensure compliance with the FLSA.

 

1 It is important to recognize that slightly different (more liberal) standards apply to non-profit entities under the FLSA as it relates to unpaid interns and/or volunteers.