Nothing in This Life is Free: Unpaid Internships Come Under Fire

The low-paid or unpaid internship.  It has been seen traditionally as a win-win for companies looking for inexpensive help and students looking to gain valuable experience.  But the concept has come under assault recently as companies and even government officials are drawing bad press and even lawsuits

Magazine publisher Conde Nast was sued for paying interns less than a dollar, then drew bad press when it was reported that it simply stopped paying interns.  Sheryl Sandberg—COO at Facebook, founder of the Lean In Foundation and author of a wildly popular book—drew bad press when it was reported her organization wasn’t paying interns.  Not to be left out, even the White House interns have banned together. The grassroots Fair Pay Campaign organization is pressing the President to set an example for others in the public and private sectors.  Fair Pay Campaign leader Mikey Franklin summed up the group’s purpose this way:  “We have a minimum wage law in this country, and just because you call someone an intern doesn’t mean you get out of it.”

Long-Term Effects

Not only do interns feel they are being cheated in the short-run, but a recent survey suggests unpaid interns suffer in the long-run as well.  The results of the National Association of Colleges and Employers’ 2013 survey shows that 63.1% of paid interns received at least one job offer before graduation, while only 37%of  their unpaid peers received an offer, little more than those who don’t participate in internships at all.  The NACE survey also reports significantly higher starting salaries for those who had paid internships.  There could be other reasons for this disparity—such as the relative qualifications of students who secure paid vs. unpaid internships, which continues to serve them well after graduation—but still, the paid interns enjoy greater initial job success, according to NACE.

This presents a risk to employers in both the for-profit and non-profit sectors, and it would be wise to carefully evaluate whether your internship programs comply with the Fair Labor Standards Act (FLSA) and state law standards, according to an article written by Christopher Kaczmarek and Ryan Crosswell with the employment law firm Littler Mendelson.

They wrote that a number of interns have sued their former employers in recent months, claiming they should have been classified as employees and that they deserve backpay for all hours worked plus any overtime.  All of these lawsuits were brought as putative class actions, Kaczmarek and Crosswell pointed out.

The attorneys referred to three lawsuits against media companies in New York. “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 making coffee and taking lunch orders, managing corporate expense reports, coordinating and making deliveries, conducting research, and performing secretarial work.  According to the complaints, if the companies did not use interns, they would have had to hire employees to perform these entry-level tasks. Thus, according to the plaintiffs, the use of interns served to keep the companies’ costs down,” Kaczmarek and Crosswell wrote.

Rules May Vary

While true interns are not employees and are not subject to the minimum wage and overtime requirements of the FLSA, states may have different definitions and tests.  “Individuals cannot simply agree to be interns; they must meet the applicable test. Under the FLSA, individuals may not waive their statutory right to receive the minimum wage and overtime, even if they genuinely want to work voluntarily as an intern,” Kaczmarek and Crosswell wrote.  The U.S. Department of Labor (DOL) says an individual is an intern, not an employee, only if:

1. the internship is similar to training that 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 internship derives no immediate advantage from the activities of the intern, and on occasion the employer’s 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.

Whether all six of these criteria must be met is the subject of debate.  The DOL historically says yes, but some courts have held that all six should be considered but not all have to be met, the attorneys write, but hone in on one component.

An Academic Experience

“Regardless of whether all six of the criteria must be satisfied, the key to any finding of internship status is that the internship experience must predominantly benefit the intern, not the employer,” the Littler Mendelson attorneys said.  “In that light, 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, as opposed to an employee.”  (The application of these rules to the non-profits is a question under review by the DOL.)

Kaczmarek and Crosswell encourage employers in both the for-profit and non-profit sectors to carefully evaluate their internship programs for compliance with federal and state rules. “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. If an individual fails to meet the applicable tests for intern status, then the employer needs to treat the intern as an employee for purposes of state and federal wage and hour laws.” 

The result is that interns will need to receive minimum wages as well as overtime plus, such things as meal and rest break requirements—and records must be kept.

Disclaimer: The views and opinions expressed in this article are those of the individual sources referenced and do not reflect the views, opinions or policies of the organizations the sources represent.