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Unpaid Interns, Under Scrutiny

With summer just a few short months away, employers across the countryare gearing up to welcome this year’s class of anxious young college students as summer interns. While labor is in no short supply, free intern labor is under scrutiny. Employers need to takes steps to ensure their intern programs align with federal and state regulations.

In 2010, the U.S. Department of Labor Wage and Hour Division (“DOL”) issued strict guidelines for unpaid internships. Under the unpaid internship guidelines, an employer may avoid violating the Fair Labor Standards Act (“FLSA”) if:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which 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 training derives 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. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

The thrust of the guidelines is to ensure that if an employer receives an immediate advantage from the interns’ work, then the employer must pay the intern.

In light of recent lawsuits by unpaid interns, the Second Circuit Court of Appeals has offered additional guidance on what constitutes an unpaid intern. The Second Circuit’s analysis focused on the educational and academic benefits to the interns, and “whether the intern or the employer is the primary beneficiary of the relationship.”

 To avoid any confusion or uncertainty, employers should follow these guidelines:

Pay Your Interns.

If there is any uncertainty regarding whether an intern(s) meets the DOL’s six criteria, pay the intern(s) minimum wage, and require that the intern(s) not work more than 40 hours per week. Any hours worked above 40 hours will require overtime pay.

Correctly Classify Your Interns.

To avoid paying your minimum wage intern(s) benefits, you may try to classify the intern(s) as an independent contractor. However, Massachusetts has a very strong presumption that a worker is an employee under the Independent Contractor Law, M.G.L. c. 149 § 148B(a)(1-3), unless:

1. The individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and

2. The service is performed outside the usual course of the business of the employer; and,

3. The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

Unless your intern meets these criteria, classify them as an employee.Your typical internship, by its very nature, is unlikely to qualify as an independent contractor and violations can lead to costly damages and attorney’s fees.

Affiliate Your Internship Program with a School

One way for you to comply with the DOL criteria is to affiliate your internship program with a university, school, or non-profit association devoted to developing internship opportunities.

Any such internship or partnership should include:

  • a structured and educationally beneficial program;
  • a credit or credits for the internship if partnered with a school or university;
  • a detailed curriculum or outline of the training that the internship provides;
  • a form that the intern must sign, which is (1) a statement acknowledging that the intern will receive college credit (if you’re partnering with a school or university) at the completion of the internship and (2) that the intern will not be paid;
  • a strict end date for internship that you enforce.

Resist the urge to hire a recent graduate that you are unwilling to pay.

One of the biggest mistakes you can make is hiring a recent graduate for an unpaid internship. Because the recent graduate has left the educational institution behind, you will be hard pressed to argue that the training is similar to what the intern would have received in an educational environment. Similarly, you will have difficulty proving that an unpaid internship is in the best interest of the intern, is not displacing an employee, and has a strict end date that the intern fully comprehends. Indeed, the recent graduate is most likely hoping that the job eventually turns into a paid position. When the paid position does not come to fruition, the former intern may even attempt to sue you for back wages.

© 2019 SHERIN AND LODGEN LLP

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About this Author

Partner

C. Forbes Sargent III is chair of the firm’s Business Law Department. His practice includes general representation of emerging and established businesses in all areas, including business formation, bank and venture capital financing, mergers and acquisitions, joint ventures, and sales and distribution contracts. He represents clients in shareholder issues, including buy-sell agreements and shareholder disputes, with an emphasis on closely held businesses.

With a clientele that includes a number of technology companies, Forbes practices...

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