Wage & Hour Insights - Guidance & Solutions for Employers

Guest Blogger: Mark Wilkinson

Summer has arrived and many employers have already supplemented their operations with student interns, but the question we see crop up repeatedly is, “do I have to pay interns?”  In the last few years, with a more competitive job market and corporate focus on reducing costs, we have seen an increase in the use of unpaid interns.  Unfortunately, not all internships can be unpaid.  

Several high-profile employers currently face wage and hour collective actions brought by former interns who now claim they should have been paid during their internship.  The entertainment industry is currently under attack for its longstanding use of unpaid interns.  For example, former interns are currently suing Fox Searchlight pictures for unpaid wages on the set of the movie, Black Swan. See, e.g., Glatt et al., v. Fox Searchlight Pictures Inc., No. 11-6784.pdf (S.D. N.Y. June 11, 2013) (where after analyzing the DOL’s six-factor test and considering the totality of the circumstances, the court determined that some of the plaintiffs were improperly classified as unpaid interns and were “employees” covered by the FLSA and a similar state statute).

While the courts continue to wrestle with how to treat unpaid interns, the United States Department of Labor has provided employers with some guidance.  Public employers and not-for-profit entities do not have to pay their interns.  On the other hand, private employers, must meet a six-factor test in order for an internship to qualify as unpaid under the Fair Labor Standards Act:

• Is the internship similar to training given in an educational environment?
  • For instance, could the intern pay to receive this kind of training somewhere else?
  • The more an internship program is built around the classroom or academic experience, as opposed to the employer’s actual operations, the greater the chance the internship will be considered an extension of the student’s educational experience.
• Is the internship experience for the benefit of the intern?
  • College credit is a strong indicator that the intern benefits from the experience, but will not be dispositive.
  • Does the intern receive a real benefit from the internship (like learning a skill transferrable to other employers)?
• Does the intern work alongside regular employees (and not otherwise displace them) under close supervision of existing staff?
  • Interns cannot fill in for regular employees who want take time off or who are on leave and employers cannot use interns to add to the workforce during peak periods.
  • Job shadowing where the intern performs little or no work looks like a bona fide training and educational experience. 
• Does the intern not provide the employer with any immediate advantages or services?
  • Technically, this means that interns cannot perform any menial tasks like deliver mail, sort files, fetch coffees, or run errands.
  • This requirement of the test is the most difficult and controversial and a couple courts have rejected it altogether.  See Solis v. Laurelbrook Sanitarium & School Inc., 642 F.3d 518 (6th Cir. 2011) (“the proper approach … is to ascertain which party derives the primary benefit from the relationship”); McLaughlin v. Ensley, 877 F.2d 1207 (4th Cir. 1989) (general test in the Fourth Circuit is whether the employee or the employer is the primary beneficiary of the intern’s labor). 
• Does the intern understand that they are not entitled to a job at the conclusion of the internship?
  • Unpaid internships should have a fixed duration established prior to the start.
  • An internship should not be used as a trial or probationary period for job-seekers.
• Do both the employer and the intern understand that the intern is not entitled to wages for the time spent in the internship?
  • The label “intern” or “trainee” does not matter under the FLSA and job titles are largely irrelevant—only the duties that persons perform matter.
  • A person cannot “agree” to be an unpaid intern.

As a flowchart, the DOL’s test looks like this:

Employer Insight

Given the activity in this area from the plaintiff’s bar, employers should take a hard look at their unpaid internship programs and evaluate them against the DOL’s six-factor test.  An internship agreement or acknowledgement form tailored to the factors in the test is a good start, but employers should remember that persons cannot waive the protections of the FLSA.  So, an agreement will not necessarily resolve the question.  Employers that have come to rely on the contributions of interns each summer or during school semesters will likely have a hard time justifying their internship program as unpaid, even if every other employer in the industry does the same thing. 

As summer break is about to begin, there is a significant decrease in the number of paid summer jobs available for students.  As an alternative, there are a number of students hoping to land internships in the private sector.  Given the number of students vying for these positions and the country’s continued slow economic recovery, many companies are considering offering unpaid internships.  However, simply because the student is willing to work for free does not necessarily mean that the company can do so without violating the Fair Labor Standards Act (FLSA) and related state wage and hour statutes. 

Last year, the Department of Labor (DOL) issued a fact sheet providing general information to help determine whether interns must be paid for their services under the FLSA.  Whether the FLSA applies to an internship depends on whether there is an employment relationship between the intern and the company.  The FLSA defines the term “employ” very broadly and internships in the private sector will most often be viewed as employment unless the work is for the benefit of the intern.  And if the interns qualify as employees, they must be paid at least the minimum wage and overtime compensation for hours worked over 40 in a work week.  

In order to make this determination, the DOL applies a six factor test with particular focus on the work environment, primary beneficiary of the activity, displacement of employees, supervision and job entitlement.  While helpful, the DOL does not require that a student receive academic credit to keep the internship from following under the auspices of the FLSA.

If you do choose to hire an intern on an unpaid basis, best practices dictate that the intern and employer have a written communication that outlines the learning objectives of the internship, the type of training provided and the fact that the internship is unpaid.