With the publication of Factsheet 71, the Department of Labour Wage and Hour Division sent clear warning signals to for-profit employers which hire unpaid interns that interns are not free labour. Acting Director of the Wage and Hour Division Nancy J Leppink summarised the division's position regarding the difficulty of satisfying its standards for unpaid internships:

"If you're a for-profit employer or you want to pursue an internship with a for-profit employer, there aren't going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law."

Under the Fair Labour Standards Act, an internship is not considered employment, and thus is exempt from minimum wage requirements, if it meets all the criteria of a six-factor test. The factsheet updates the long-established test as follows:

  • 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.
  • The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

The factsheet stresses that the "exclusion from the definition of employment is necessarily quite narrow because the [act's] definition of 'employ' is very broad". The factsheet also offers guidance regarding the factors. An unpaid internship is more likely to be exempt from minimum wage requirements if it:

  • "is structured around a classroom or academic experience as opposed to the employer's actual operations";
  • offers training that "can be used in multiple employment settings, as opposed to skills particular to one employer's operation"; or
  • is a job shadowing opportunity that "allow[s] an intern to learn certain functions under the close and constant supervision of regular employees, but the intern performs no or minimal work".

Conversely, an unpaid internship is likely to be considered work for purposes of the act if it:

  • requires engagement in "the operations of the employer or... productive work" like filing, assisting customers or other clerical work;
  • is a substitute for regular workers or is used to "augment [the] existing workforce during specific time periods"; or
  • provides for "the same level of supervision as the employer's regular workforce".

In light of increased scrutiny by the Wage and Hour Division, employers should review their use of unpaid internships for compliance with the act. Below are some tips for employers when evaluating their programmes:

  • Know your motive: be prepared to articulate a purpose for the internship programme that does not include a benefit to the company.
  • Be clear: have each unpaid intern sign an agreement that explicitly states that he or she is not entitled to wages.
  • Set goals: structure the internship so that it looks like a college class. For example, create a syllabus explaining what the intern is expected to learn and accomplish.
  • Keep it short: internships should not be indefinite. An internship should last as long as is needed to complete the expressed goals of the programme.
  • Do not discuss employment: in order to prevent any misperception that a job may be available at the end of the internship, do not discuss an intern's potential employment with your company.
  • Get partners: form partnerships with local colleges that provide course credit for internships. Unpaid internships that offer course credit are much more likely to pass Wage and Hour Division scrutiny.

For further information on this topic please contact Kevin B Leblang or Robert N Holtzman at Kramer Levin Naftalis & Frankel LLP by telephone (+1 212 715 9100), fax (+1 212 715 8000) or email (kleblang@kramerlevin.com or rholtzman@kramerlevin.com).

 

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