Each summer, thousands of college students look to advance their careers by landing the perfect internship. For a variety of reasons, many local employers can only offer these students an unpaid internship. Presumably, this is a win for both sides: the student gains valuable experience and the employer does not have to budget for an additional seasonal employee. Unless the employer is careful, however, the unpaid intern status can present various kinds of legal liability risks (for example, unemployment, workers’ compensation, wage and hour, discrimination, and harassment).
You may recall that this issue arose a few years ago when large employers, such as Fox Searchlight Pictures, Condé Nast, Warner Music Group, and Hearst Corporation, among others, were sued by interns seeking payment for unpaid work. These cases were subsequently resolved. One key issue in these cases, and in other matters involving unpaid interns, is whether the unpaid intern is really, legally speaking, an employee entitled to pay and other legal protections and benefits.
Recently, this issue has come up again. Last month, Amnesty International filed an appeal to the National Labor Relations Board (NLRB) asking the NLRB to overturn a ruling that the organization’s executive director, upon being presented with a petition from interns seeking pay, made unlawful threats against the interns (who were classified as employees). Amnesty appealed this decision to the NLRB arguing that interns are not employees and, therefore, are not subject to the National Labor Relations Act. If the NLRB takes this case, the outcome may have broad implications on the non-profit sector, which relies heavily on unpaid interns. For-profits, non-profits, and the government are all subject to slightly differing standards on the question of how to classify interns.
Last year, the U.S. Department of Labor issued additional guidance on this topic as it relates to for-profits. According to the Department, employers should examine which party is the “primary beneficiary” of the relationship to determine whether an unpaid intern is actually an employee. Specifically, employers should evaluate whether the:
(1) parties clearly understand that there is no expectation of compensation;
(2) internship provides training similar to that which would be given in an educational environment (i.e., clinical, hands-on training);
(3) internship is tied to the intern’s formal education program (i.e., receipt of academic credit);
(4) internship corresponds to the academic calendar;
(5) internship’s duration is limited to the period in which the intern receives beneficial learning;
(6) intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern; and
(7) parties understand that there is no entitlement to a paying job at the end of the internship.
There is no one single determining factor, and the Court and agency decisions that apply this test are very fact specific. If the factors reflect that the student is really an employee, the student must be paid both minimum wage and overtime, if applicable, and is entitled to the legal protections of an employee. If the student is an intern, however, minimum wage, overtime do not apply, and certain legal protections may not apply.
For these reasons, before engaging an unpaid intern, employers should review the factors set forth above to help ensure the proper classification of interns. In addition, employers who wish to use unpaid interns should consider developing formal internship programs with a written policy and consistent oversight.