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No Good Deed Goes Unpunished: The Perils of Unpaid Interns

May 8

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5/8/2014 8:27 AM  RssIcon


It is this time of year that many businesses are looking forward to bringing on unpaid interns who are looking to gain useful work experience during the summer.  They are so eager and happy to work for you without pay, just to get the experience and the resume fodder.  You are doing a good deed, right?  And maybe they will do a little useful work while they are there.

Most people are very surprised that except in very limited circumstances, this can be a violation of minimum wage requirements and later the employer can be sued for unpaid minimum wages and overtime pay!  In recent years there have even been some high-profile class actions in which participants in large internship programs have filed class actions seeking back pay – and won!

The U.S. Department of Labor (“DOL”) Wage and Hour Division has issued a fact sheet that sets out a six-factor test for determining whether an individual may be classified as a trainee or intern who is not covered by the Fair Labor Standards Act.  Here is the gauntlet of six factors, in order of increasing surprise to most business owners:

1. Clear Understanding of Non-Payment.  Piece of cake, right?  Usually there is no issue here and everyone understands that the position is an unpaid internship.  Unfortunately, many people think that this one factor is all you need, and if everyone is crystal clear that a position is an unpaid internship then there is no issue.

2. No Entitlement to a Job.  The internship has to be for a defined and finite period of time at the outset, and everyone needs to be clear that there is to be no expectation of continued employment after the internship.  OK, still no big deal, right?

3. No Substitution for Regular Employees.  The intern must not substitute for or supplement regular employees. This is taken to the extent that you can’t properly have an intern doing any task — such as answering the phones, filing documents, or other tasks — that you might have a regular employee do. This is where you are probably starting to say to yourself, “Huh?  What?”

4. Benefit to the Intern.  The internship experience must be for the benefit of the intern and offer benefits to an intern that would not be available to a paid employee. So are you with me?  Not only can the intern not do anything for you that a regular employee would do, but you have to be sure to offer this useless person extra benefits not available to useful people.

5. Educational Component.  The internship must provide training similar to what would be given in an educational environment, like a class. So the intern must be useless, pampered and educated.

6. “No Immediate Advantage” to the Business.  The DOL criteria provide that a business having an unpaid intern should not “derive any immediate advantage” from the activities of the intern.  This basically says “You had better make darn sure that they are totally useless to you.”

I am guessing that almost no one who has interns and reads this actually handles their interns in compliance with DOL guidelines, and many of you probably think I am making this up or exaggerating.  If you think so, just do an Internet search for “Glatt v. Fox Searchlight”.

It could be worse.  I’ve had paid employees who thought their job description was that of an intern.

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