Employers Beware of Unpaid Internship Programs
Internships have long been a staple of the business community. However, if your business uses an unpaid internship program, you should take a second look at that program to make sure it is an asset, and not a potential liability.
If an intern qualifies as an “employee” under the Fair Labor Standards Act, the law requires that the intern be paid. In a Fact Sheet published in 2010, the United States Department of Labor (DOL) explained that “internships in the ‘for-profit’ private sector will most often be viewed as employment,” and that interns who qualify as employees “must be paid at least the minimum wage and overtime compensation.”
The DOL has adopted through Handbook guidance (which is not given the same legal recognition of a federal regulation) a six part test in order for an internship program to be unpaid:
- The internship is similar to training which 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 derives no immediate advantage from the activities of the intern, 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 intern understand that the intern is not entitled to wages.
If all of those six criteria are met, no “employment” relationship exists, and an unpaid internship is legal. However, if any one of those six criteria is lacking, a business cannot maintain an unpaid internship program without exposing itself to potential liability for a wage and hour claim. Given the stringency of the criteria, it is quite unusual for unpaid internships to be legal. A recent uptick in well-publicized unpaid intern lawsuits, against companies like Hearst Corporation, Fox Searchlight, and The Charlie Rose Show, makes it especially important for all businesses, to be cognizant of these criteria when managing their internship programs.
For example, a federal District Court judge ruled that Fox Searchlight violated state and federal law by not paying production interns who worked on the film Black Swan. The Court applied each of the criteria listed in the DOL Fact Sheet, and found that the interns
“worked as paid employees work, providing an immediate advantage to their employer and performing low-level tasks not requiring specialized training. The benefits they may have received – such as knowledge of how a production or accounting office functions or references for future jobs – are the results of simply having worked as any other employee works, not of internships designed to be uniquely educational to the interns and of little utility to the employer. They received nothing approximating the education they would receive in an academic setting or vocational school.”
Eric Glatt, et al. v. Fox Searchlight Pictures, Inc., No. 11-6784 at 26 (S.D.N.Y. June 11, 2013).
While the DOL six factor test may certainly be a standard by which courts measure unpaid internships, federal courts also recognize that the DOL test is not mandatory. For example, in 2015, two federal Circuit Courts (Second and Eleventh Circuits Courts of Appeal) declined to follow the DOL’s six factor test. Instead, in a lawsuit filed by unpaid movie studio interns, the Second Circuit outlined a “primary beneficiary” test for determining whether an individual is an employee covered under the FLSA. In determining how to determine the “primary beneficiary” in the intern-employer relationship, the Second Circuit stated that the focus should be on the benefits to students while “considering whether the manner in which the employer implements the internship program takes unfair advantage of or is otherwise abusive towards the student.” Thereafter, the Eleventh Circuit followed suit, adopting the Second Circuit’s primary beneficiary test in a case involving a certified registered nurse anesthetist training program.
While the primary beneficiary test may offer more flexibility in analyzing unpaid internship programs, it also creates a legal analysis that is extremely fact dependent and will be applied on a case-by-case basis regarding the understanding and expectations of the business and the intern.
The issue of unpaid internships is an area of employment law receiving increasing attention. As such, it should not be simply assumed that interns are unpaid. Instead, the clear legal trend is that in many, if not most, circumstances, interns should be paid.
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