Bar News - April 19, 2013
Labor & Employment Law : Unpaid Internships Pose Risks for Employers
By: Christopher B. Kaczmarek
With the approach of summer, many employers are making plans to welcome an incoming class of summer interns. Internships generally are considered a "win-win" proposition that offers the employer a cost-free opportunity to meet and evaluate potential new hires and the intern valuable experience and connections.
In the past year, however, a number of interns have filed lawsuits claiming that they should have been classified as employees for purposes of state and federal wage and hour laws. As discussed below, these lawsuits should serve to remind all private sector employers of the potential risks associated with internship programs.
These lawsuits, all filed as putative class actions, began appearing in early 2012. In each case, the plaintiffs claimed that interns were a crucial component of the workforce because they performed entry-level tasks for free. Those tasks included everything from making photocopies to performing secretarial work to conducting research. The plaintiffs claim that they, and the putative class of current and former interns they seek to represent, should have been classified as employees, not interns. Accordingly, they are seeking payment for all the hours they claim to have worked, including overtime pay.
For example, in December 2012, a former intern sued Hamilton College in New York. The plaintiff previously had served as both an assistant football coach and an assistant women’s basketball coach. According to the complaint, the plaintiff regularly worked in excess of 40 hours per week. Because the College had classified him as intern, however, he did not receive pay for all hours worked. Instead, he received a flat monthly stipend. The stipend allegedly failed to compensate the plaintiff for all the hours he worked, even at minimum wage. The plaintiff is now seeking to certify a class of all interns who worked in the college’s athletic department at any point in the past six years.
The risks posed by this kind of lawsuit are real, demonstrated by the fact that in December the producers of The Charlie Rose Show agreed to pay $250,000 to settle a lawsuit filed on behalf of current and former interns.
Who Is An Intern?
Interns are not employees and, therefore, are not subject to the minimum wage and overtime requirements of the federal Fair Labor Standards Act (FLSA). According to the federal Department of Labor (DOL), the agency that interprets and enforces the FLSA, an individual is an intern, as opposed to an employee, only if:
Some courts have criticized the DOL’s six-factor test and suggested that, although all six criteria should be considered, an individual may still qualify as an intern under the FLSA, even if not all the criteria have been satisfied.
- the internship 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 internship derives no immediate advantage from the activities of the intern, and on occasion the employer’s 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.
Regardless of the precise nature of the test, the key to any finding of internship status is that the internship experience must predominantly benefit the intern, not the employer. The DOL has stated that, in general, "the more an internship program is structured around a classroom or academic experience, as opposed to the employer’s actual operations, the more likely the internship will be viewed as an extension of the individual’s educational experience," and, therefore, the more likely it is that the individual will properly be considered an intern, rather than an employee.
What About Nonprofits?
In 2010, the DOL published a fact sheet discussing the six-factor test. In a footnote, the DOL observed that its wage and hour division "recognizes an exception for individuals who volunteer their time, freely and without anticipation of compensation for religious, charitable, civic, or humanitarian purposes to nonprofit organizations as volunteers."
The DOL went on to say that "[u]npaid internships in the public sector and for nonprofit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible."
The DOL, however, did not expressly articulate an alternative test for nonprofit employers. Moreover, some courts have suggested that a more lenient test should be applied to internships in the nonprofit sector. As a result, there has been some confusion among nonprofit employers as to the status of their interns. In response, the DOL has stated that it is reviewing the need for additional guidance on the topic of internships in the non-profit sector.
It is important to remember that an individual cannot simply agree to be an intern and waive his or her right to receive the minimum wage and overtime. Instead, he or she must meet the applicable legal test for intern status. However, the DOL’s six-factor test can be difficult to satisfy, particularly where the intern provides some useful service to the employer that otherwise would have been provided by an employee.
As the Hamilton College case makes clear, simply paying an intern a stipend does not insulate an employer from a lawsuit. Indeed, a plaintiff may well argue that payment of a stipend constitutes an admission by the employer that it is deriving some benefit from the intern’s services and, therefore, the intern should properly be classified as an employee.
If an individual fails to meet the applicable tests for intern status, then he or she must be paid at least the minimum wage for all hours worked, plus any overtime due. In addition, an employer must make sure that it keeps proper records of the hours worked by these interns/employees. Further, if an employer concludes that its interns truly are employees under the FLSA, then it should consider whether those "interns" also are employees for purposes of state wage and hour laws and, if so, take steps to comply with those laws.
Christopher Kaczmarek, a shareholder with Littler Mendelson, represents employers of all sizes in a wide range of labor and employment matters. He is admitted in New Hampshire and Massachusetts and can be reached at 617-378-6017 or email@example.com.