The Interns Are Coming!
Is Your Program Complying with Wage and Hour Law?

By William Sleight   March 6, 2013

Spring is just around the corner and your company may soon be gearing up to hire unpaid interns for the summer…

Hiring unpaid interns seems at first blush to be an attractive, symbiotic arrangement – the intern gets the proverbial “foot in the door” and the chance to obtain real-world work experience, and the hiring organization gets additional “free” labor for the summer.  Sounds like it might be the beginning of a beautiful friendship, doesn’t it?  Not so fast, cautions the U.S. Department of Labor (DOL), which advises that most for-profit employers must pay their interns in accordance with wage and hour laws, except in certain narrow circumstances.

In 2010, the DOL ramped up its attention to the issue by issuing guidelines concerning the classification of unpaid interns.  Several high-profile lawsuits brought by former unpaid interns soon followed, including class-action suits against the Hearst Corporation, the Charlie Rose Show, and Fox Searchlight Pictures, all of whom are alleged to have employed unpaid interns in violation of the law.

In the Hearst matter last year, a federal judge conditionally granted class-action status on behalf of a group of interns seeking pay and other benefits on behalf of the class, which may be as large as 3,000 plaintiffs.  In December 2012, the Charlie Rose Show settled the suit against it and agreed to pay up to $250,000 to a class of approximately 189 former interns – amounting to a payout of about $1,100 per intern, plus attorney’s fees.

These suits highlight the very real and potentially expensive risks facing for-profit employers who hire unpaid interns without careful planning and adherence to the DOL’s guidelines.  Even without a class-action suit, single litigants can obtain significant damages.  Under the Fair Labor Standards Act, claimants can win back wages and overtime pay, which are subject to doubling, and attorney’s fees.  Massachusetts law provides an even greater penalty for violations of the state Wage Act by mandating the award of treble damages, interest, and attorney’s fees.

Based on the DOL guidelines concerning unpaid interns, organizations should be aware that interns will be considered “employees” subject to wage and hour requirements – including minimum wage and overtime pay requirements – unless each of the following six criterion are met:

1. The internship, even though it includes actual operation of the facilities of the employer, 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 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.

If your internship program is designed to supplement your work force or provide other support or function to your business operations, the interns would likely be considered “employees” under the standards set forth above.  Treating interns as paid employees allows your organization more latitude to design the internship experience and work assignments outside the strict confines of the DOL guidelines.  It also means, however, that you need to comply with all applicable employment laws, including but not limited to laws related to minimum wage, overtime, workers’ compensation insurance, unemployment taxes, and non-discrimination.  Employers who try to get around these requirements, either by improperly treating workers as unpaid interns, or misclassifying them as independent contractors, could be subject to liability.

It is important to note that the six-factor test is specifically applicable to for-profit internships, and that the DOL has not yet issued specific guidelines for internships in the public and non-profit sector.  The DOL noted in the same guidance that unpaid internships with public and non-profit organizations, where the intern “volunteers without expectation of compensation,” are generally permissible.  At the time, the DOL stated that it was reviewing the need for additional guidance on such internships.  Public and non-profit organizations with questions about whether interns truly qualify for volunteer status should review their program with counsel.

We recommend memorializing the terms of your internship program – whether paid or unpaid or at a for-profit or non-profit – in an agreement with each intern.  Plan to discuss these matters, as well as issues concerning worker’s compensation insurance, benefits, and other liability related to interns, with employment counsel before school is out and the interns are in.

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