With spring and summer on the horizon, many employers are gearing up to interview and recruit for their summer internship programs. Summer internships are an age old tradition giving students opportunities for exposure in their chosen career fields. Although many successful business people reportedly jump started their careers by securing highly coveted summer internships where they often work for little or no pay, some employers are feeling the kick of the new generation that is not so sure the internships are all they say they are cracked up to be.

Most notably, in recent years there have been a string of cases in which former interns for various entertainment, communication, and media companies have filed individual and class action lawsuits alleging that these unpaid interns actually should have been paid as employees under the Fair Labor Standards Act (the Act). A few weeks ago the Second Circuit Court of Appeals heard oral arguments in two such cases. After unfavorable opinions at the district court level in 2013, the defendant companies argued that and the Second Circuit judges considered whether the Department of Labor’s six-factor test for determining whether payment of compensation is required is out-of-date and encourages employers to do away with internships altogether. The defendants urged the court to adopt a balancing test, where the internship may be unpaid as long as the intern receives the primary benefit from the internship (i.e. urging the court to consider the totality of the circumstances).

Currently under the Act, there are only certain limited instances in which for-profit private sector interns or training program participants may work without being compensated. The current rule is that interns may work without compensation only if the internship program satisfies six factors:

  1. The internship is akin to training given in an educational environment;
  2. The internship experience is for the benefit of the intern or trainee;
  3. The intern does not displace regular employees; conversely, the intern works under close supervision of the employer’s staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern or trainees; and on occasion the employer’s operations may actually be impeded; 
  5. The intern or trainee 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 all of the factors listed above are met, an employment relationship does not exist under the Act, and accordingly, the Act’s minimum wage and overtime provisions do not apply to the intern. This exclusion from the definition of employment is very narrow because the Act’s definition of employ is very broad, and in the last few years, many for-profit private sector internship programs have been held to violate the Act.

Until we get more clarity from the courts, employers would be wise to keep the following in mind when structuring an unpaid internship program:

  • Duties and Tasks. Plan in advance and maintain a key set of objectives tailored to educational metrics that interns should achieve through participation in the internship program. Align the internship duties in accordance with obtaining certain essential training credentials. The internship duties should mirror an educational curriculum where there are tangible and specific educational goals and skills that the interns should achieve by the conclusion of the internship. Avoid having internships where interns are merely running errands like making food runs or answering telephone calls. The employer should not be dependent on the intern for any daily task performance. Therefore, intern hiring should not impact or serve as an alternative to hiring employees for everyday key business duties. Rather, ensure interns have mentors or employees who closely supervise the interns’ assignments and delegated tasks.
  • Benefit of the Intern. Internships should be structured for the benefit of the intern and not the company. Since most internships do not guarantee a job for each intern following the internship period, employers must ensure that the training provided to interns will be beneficial to the interns’ long term professional development where the interns will learn transferable skills no matter where they ultimately begin their careers. Employers should not be receiving an immediate advantage as a result of internship programs.

Since these metrics are difficult to meet and internship litigation is becoming more common, it may be prudent simply to pay interns at least minimum wage and also record and compensate interns for any overtime hours worked in the same manner as other non-exempt employees.