Continued Crackdowns on Employers’ Use of Unpaid Interns

By: Patrick J. Kirby

With the summer gearing up, employers all over the country are welcoming unpaid interns into their ranks.  But due to increased scrutiny by both the federal Department of Labor and the California Division of Labor Standards Enforcement, as well as numerous class action lawsuits that have been filed in the last year, employers who hire unpaid interns are wading into an increasingly tangled legal landscape, and must take care to ensure they don’t unwittingly run afoul of state or federal laws in this area.

Federal Department of Labor (DOL) Internship Standards

As a general rule, the DOL has issued statements that internships at for-profit, private sector employers will almost always require payment of at least the minimum wage, and that unpaid internships at for-profit private sector employers will almost always run afoul of labor laws.  However, the DOL has established six standards to guide employers in determining whether the use of unpaid interns in certain circumstances is permissible under federal labor laws.  In order for an internship to be exempt from the minimum wage requirement, it must meet all six criteria:

  1. The internship must be “similar to training” that would be given in an “educational environment”;
  2. The internship and training must be “for the benefit of the intern”;
  3. The intern must not “displace regular employees,” but must instead work “under close supervision of existing staff”;
  4. The employer must derive “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. There is a clear understanding between the employer and the intern that the intern is “not entitled to wages for the time spent in the internship.”

Unpaid Internships Under California Law

In addition to the six guidelines provided by the federal Department of Labor, the California Division of Labor Standards Enforcement (DLSE) has in the past relied upon five additional factors in determining whether an unpaid internship is permissible.  While the DLSE has since clarified that these factors are not based on any statute or regulation and are thus not enforceable, these factors can nonetheless provide important guidance for employers in developing an internship program that complies with both state and federal labor laws:

  1. Any internship should be part of an “educational curriculum”;
  2. The interns should not receive “employee benefits”;
  3. The training received by interns should be general “so as to qualify the [interns] for work in any similar business, rather than designed specifically for a job with the employer offering the program”;
  4. The screening process for interns should not be the same as for regular employment, but rather must be based on “criteria relevant for admission into an independent educational program”; and
  5. Advertisements or postings for internships should clearly describe the positions as educational or training-based rather than as employment.

Practical Tips for Employers

Even a cursory reading of these “guidelines” shows that determining with any level of certainty whether an unpaid internship is permissible can be extremely difficult.  But there are a few practical tips that can be helpful in crafting an unpaid internship that fits the DOL factors and guidelines:

First, employers should attempt to maximize classroom and/or training experiences rather than simply assigning more traditional “work” projects to interns.  Second, employers should attempt to provide interns with experience practicing more “general” skills rather than assignments or duties specific to that employer’s operations.  Additionally, in order to ensure that an intern is not viewed as “displacing” regular employees, the internship should be designed to minimize independent work by the intern and should instead revolve around close supervision and “shadowing” of other employees.  Employers should also take great care to ensure that interns are not performing more “menial” tasks such as filing, clerical work, data entry, or other tasks that might indicate they are displacing other employees or are working merely for the advantage of the employer.  Further, employers offering fixed “stipends” should take great care in determining the amount of any stipend so as to reasonably approximate the intern’s expenses rather than giving the appearance that the payment simply an attempt to pay less than the minimum wage.  Finally, employers should ensure that internships are not used as simply a “trial period” for regular employment, and thus should always have a definite beginning and ending date.

If it is determined that an employer improperly classified an internship as “unpaid,” the employer could be liable for violations of federal and state labor laws for failing to pay at least the minimum wage, failure to properly provide wage statements, and meal and rest period violations, among others.  Accordingly, it is vital for all employers, large and small, to design any unpaid internship program with these factors in mind and in close partnership with human resources and legal counsel to ensure that the employer is avoiding potential legal liability.

To read more about the DOL’s guidelines, read the Department of Labor “Fact Sheet” (PDF) regarding internships.

For more information about compliance with California law, read the DLSE’s April 7, 2010 opinion letter (PDF).

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