As summer approaches, many businesses are receiving applications and requests from students for internships. In fact, many businesses have internship programs that not only offer students opportunities to increase their practical knowledge and experience, but also provide the business with an opportunity to evaluate these soon-to-be graduates to help identify individuals who can meet its business and customer demands.

When creating internship positions and programs, one of the main areas of concern that needs to be addressed is whether the interns can be unpaid, or whether they must receive compensation for their services. There has recently been an increase in collective action litigation under the Fair Labor Standards Act (FLSA) brought by individuals claiming to be misclassified as "unpaid interns," and seeking past wages.

The FLSA contains an exclusion to the definition of "employee" that allows businesses to have unpaid interns. Businesses may have unpaid interns as long as six criteria are met:

  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 determination of whether an internship program meets this exclusion depends upon the facts and circumstances unique to each program. If all of the factors listed above are met, an employment relationship under the FLSA does not exist and, thus, the minimum wage and overtime provisions do not apply to the intern. The "unpaid intern" exclusion from the definition of employment is interpreted very narrowly.

If interns are engaged in the operations of a business or are performing productive work, then the argument that they may be receiving some benefits in the form of a new skill or improved work habits will not exclude them from the FLSA's pay requirements because the business is benefiting from the intern's work. Examples of "productive work" include, but are not limited to, filing, clerical work, assisting customers, and assembling advertising or promotional materials.

Employers must also remember that if interns are being used as a substitute for their regular workforce, or to augment their current workforce during specific time periods (e.g., the summer months), the interns would not fall under the FLSA's exclusion, would be considered "employees," and must receive at least the minimum wage and any overtime for their work.