Unpaid Internships: How to keep the heat off your company this summer

New York City is brimming with young professionals looking to gain experience, sharpen their professional skills and build their resumes.  But, can you legally hire interns to work free?  They get the experience and you get the benefit of another set of hands in the office, right?  WRONG!  Under federal law, interns must be paid for their services unless they qualify as a “learner/trainee” under the Fair Labor Standards Act.  In light of recent, and highly publicized, lawsuits brought by interns seeking compensation for unpaid wages and overtime, how do you ensure that your company complies with the law? 

Federal Regulations

Generally, employees must be paid according to federal and state wage and hour laws.  However, according to the U.S Department of Labor, those who participate in for-profit, private sector internships need not be compensated if the internship serves only the interns’ interests.  To help determine whether an internship meets the learner/trainee exemption, the U.S. Department of Labor has devised a 6 factor test:

1. 1. The internship, even though it includes actual operation of 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.

If all 6 factors are met, the intern is not considered an employee and federal wage and overtime provisions do not apply.

New York State Regulations

In addition to the federal test above, New York State requires that 5 additional factors be met:

1. 1. Any clinical training is performed under the supervision and direction of people who are knowledgeable and  experienced in the activity;
   2. The trainees or students do not receive employee benefits; 
   3. The training is general, and qualifies trainees or students to work in any similar business.  It is not designed specifically for a job with the employer that offers the program;
   4. The screening process for the internship program is not the same as for employment, and does not appear to be for that purpose.  The screening only uses criteria relevant for admission to an independent educational program; and
   5. 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. 

What can I do?

There are some precautions that companies can take to ensure that their internship program is being carried out properly.  Consider taking these steps:

• • Teach interns skills that can be used in multiple employment settings – not just those specific to your company;
  • Ask a college or university to oversee the program and perhaps, provide the intern with school credit (helping your interns actually fulfill the educational requirements to earn their degree);
  • Avoid giving interns tasks that provide an immediate benefit to the company such as filing, answering phones, running errands and performing clerical work;
  • Prevent interns from performing tasks that would otherwise be completed by a paid employee; and
  • Make clear at the outset that the position is unpaid and that a job is not guaranteed at the end of the internship.

Satisfying the requirements of unpaid internships seems to be an ongoing issue for companies, no matter the size or how established they are.  Conde Nast recently settled a lawsuit with interns who claimed they were not compensated enough for their work.  In June 2013, the U.S. District Court for the Southern District of New York ruled that Fox Searchlight’s use of interns in the productions, “Black Swan” and “500 Days of Summer” violated the labor laws.

If in doubt, you may consider simply paying your interns (at least) the minimum wage.  Companies that offer paid internships generally do not need to limit the responsibilities and tasks of interns to those outlined above.  If your interns are being paid, you may avoid employment lawsuits or claims related to unpaid wages or overtime in the future.  It may also allow more flexibility for your company to both (i) provide interns with an educational experience and (ii) derive a more direct benefit from their services.

Does your company have an internship program?  What kind of tasks are the interns asked to complete?

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