What’s the difference between a volunteer who delivers Meals on Wheels and wouldn’t dream of getting paid, as opposed to an intern who might in fact be deemed an employee and have to be paid? It’s not easy to tell.

Summer regularly brings a clattering of interns, all looking for that unique experience or to open doors to opportunity.  Summer also brings the regular reminders that “intern” is not synonymous with “unpaid go-fer” so in most cases within private industry, the intern should be paid.  Within the nonprofit world, by contrast, common understanding persists that unpaid interns present no problems, regardless of the tasks they perform.  Experience teaches, however, that this is not always the case. 

“Employment,” as defined under the Fair Labor Standards Act, is very broad.  In general, it means to “suffer” or “permit” someone to work in your organization, and it should be read broadly in favor of coverage in order to maximize the effectiveness of the law.  “Employment” brings with it the right to the protections of the minimum wage and overtime provisions of the FLSA. Over the past several years, however, a number of high visibility law suits have placed the spotlight on the use of unpaid interns and more specifically on just where the line is drawn in defining who is an employee.

In April 2010, the U.S. Department of Labor issued Fact Sheet #71, which sought to lay out some ground rules regarding the use of unpaid internships under the FLSA.  Although giving a nod to the possibility that interns in the private “for-profit” sector might be uncompensated, the DOL added that the following six criteria must be applied when making this determination:

  • 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;
  • The internship experience is for the benefit of the intern;
  • The intern does not displace regular employees, but works under close supervision of existing staff;
  • 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;
  • The intern is not necessarily entitled to a job at the conclusion of the internship; and
  • The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

The obvious focus of these rules is on training and education: that the internship must be primarily for the benefit of the intern and not the employer.  The more directly related an intern’s tasks are to those that might otherwise be performed by staff, the more likely that the intern will be considered an “employee” under the Act and entitled to compensation.

In the very same Fact Sheet, the DOL implied that the line would not be drawn so tightly where the intern is engaged by a state or local government or a not-for-profit organization.  The agency notes in particular that its Wage and Hour Division (WHD):

… recognizes an exception for individuals who volunteer their time, freely and without anticipation of compensation for religious, charitable, civic, or humanitarian purposes to non-profit organizations.  Unpaid internships in the public sector and for non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible. WHD is reviewing the need for additional guidance on internships in the public and non-profit sectors. [Emphasis added]

No further guidance has been issued, which leaves open the question of whether the difference is one of degree or might be based on some other factor entirely.  While the FLSA contains an explicit exclusion for food banks serving a humanitarian purpose, the broader exemption implied in the Fact Sheet would be entirely a creature of rulemaking.

Those who assume that the language of the Fact Sheet implies clear sailing for non-profits in this area of the law do so at their peril.  The Fact Sheet is not legally binding, nor is it likely authoritative.  Prior Opinion Letters have applied the six part test to non-profit organizations, meaning that the language of the Fact Sheet may be no more than a generalization regarding the ability of non-profits to meet the standard the DOL has laid out.  This is particularly true given the presumption that individuals are more likely to “freely” volunteer their time to an organization that is dedicated to a charitable or humanitarian purpose, rather than pursuit of profit.

Such a conclusion may not necessarily be reassuring.  However, it doesn’t necessarily mean that a non-profit should assume its interns are employees and pay them accordingly.  The recognized fact of volunteerism makes more credible the claim that neither party expected the internship to be compensated, thereby satisfying the sixth element.  Moreover, this presumption may favor the non-profit in establishing the remaining factors, i.e. that the purpose of the internship is to serve some general goal of education and training, and not merely to fill the ranks of those performing the grunt work in the organization. 

Also, it seems possible that the DOL could draw distinctions between and among the various non-profit entities.  Where the charitable and humanitarian purpose is clear, the DOL may be more lenient than it is for other types of tax-exempt organizations, such as trade associations or political interest groups.  One can readily foresee DOL being less open to finding interns exempt from the wage and hour requirements of the FLSA if the purpose of the organization does not fit within their imagined rubric of “charitable, civic, or humanitarian purposes.”

Complicating the analysis is the fact that, in some cases, uncompensated interns do receive some type of remuneration, in the form of a stipend, expenses, benefits or nominal fees for participating in the program.  These kinds of payments do not necessarily turn the intern into an employee for FLSA purposes, but they do cloud the issue, and an amount that looks as if it is disguised compensation could result in the person being deemed an employee subject to minimum wage and overtime requirements.

The amount of the payments needs to be looked at in the context of economic realities to determine whether the payment reflects disguised compensation.  Also, organizations following this route need to beware that an EEOC Advisory Letter released in early 2012 suggests that such interns may be considered employees for EEO purposes, both for determining coverage under Title VII of the Civil Rights Act, as well as for providing remedial relief to the aggrieved intern.

The FLSA is riddled with ambiguities, so no organization should place trust in what they perceive to be bright lines.  Some basic steps that every organization can take seem fairly self-evident (even if they are rarely used): 

  • Develop a policy that defines the purpose and scope of your internship program and carves out the types of tasks that interns are not to perform
  • Focus on students who will receive credit for the internship or where the internship is credibly related to the student’s course of studies.  An individual who has been in the market for a permanent position or has experience in the field is probably not going to pass as an intern.
  • Explain the parameters of internships to staff, particularly managers, so they understand the purpose of the position, and take steps to ensure that emails and other internal communications, as well as external communications such as twitter, are consistent with those parameters.
  • Have a designated point of contact, preferably an HR manager, available to address managers’ questions and to disgruntled interns, as well as to handle DOL inquiries or inquiries from outside counsel.  This person should be the point of first contact, and not a resource of last resort.