Do Unpaid Internships Violate Federal Wage Laws?

As the father of a college student, I am well aware of the importance of and difficulty in obtaining a well-placed internship.  Luckily, my son ended up getting a paid position but many students find themselves accepting positions that pay either nothing or well below the minimum wage.  So, is that legal, their parents ask me? And like any good lawyer will always tell you,  “It depends.”

Certainly, the topic has gotten much debate recently because of the aggressive enforcement by the Justice Department and its State counterparts of the Fair Labor Standards Act. The FLSA dictates that any business that earns more than $500,000.00 per year must pay minimum wage and overtime for any work over 4  hours per week.  Having just spent a week in a hearing defending a Brooklyn car wash that was slapped with $1.6 million in fines and back wages, I can tell you that the law has some teeth to it!

So what about these positions?  Should companies offer these spots if they can’t afford (or don’t want) to pay at least the minimum wage? Are they exposing themselves to hefty fine or lawsuit?  The simple answer is that by structuring the internship program properly, they usually will be allowed to use unpaid interns for short periods of time without violating the FLSA.

The Wage and Hour Division of the Department of Labor has come up with  a six part test to help determine if someone is an “employee” or a “trainee”  for purposes of the FLSA.  Here are the factors:

  1. The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school;
  2. The training is for the benefit of the trainees;
  3. The trainees do not displace regular employees, but work under close observation;
  4. The employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion his operations may actually be impeded;
  5. The trainees are not necessarily entitled to a job at the completion of the training period; and
  6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.

Unless all six factors are met, the DOL will find that an employment relationship exists.  In DOL guideline letters, summer internships have been found to come under the FLSA even where the students simultaneously received college credit for the internship! In that case, which was decided in 2004,  the students worked flexible hours and were told that they would be taught basic marketing and promotional strategies, but they also  had to wear company uniforms and it appeared that the company reduced its regular workforce during the summer when the internships were running.  Understand that these issue normally arise when the DOL makes an on-site visit to a company; most student-interns will not sue the company after they leave for wages (though they legally could if they should have been compensated).

The federal courts do not have to apply the 6 factor test,  so courts who are reviewing these cases generally apply a “totality of the circumstances” analysis.  That is, they look at the overall picture and try to determine who was the primary beneficiary of the internship experience – the employer or the intern? If the facts make it appear that the employer was getting cheap labor and not really teaching the intern anything relevant, then the courts will find that it was employment not training.  If on the other hand,  the student benefited from the experience and learned new skills  and especially if the internship disrupted the regular business of the company, then  the  company will be off the hook.

So companies would be wise to plan a little more than usual when running an internship program. They should look at the 6 factors used by DOL and the several policy guidelines issued by the Dept.  to make sure they don’t find themselves in a “no good deed goes unpunished” scenario.

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