Summer is here and students, both college and high school, are looking for employment.  For an employer that may be able to provide “valuable” work experience to these students, some individuals may be willing to work for free, just to gain this valuable experience. As made clear in the recent New York federal court decision involving a major movie studio, allowing or requiring certain individuals to perform work for your organization without receiving compensation comes with very real legal risk.

Under the Fair Labor Standards Act (“FLSA”), subject to a few limited exceptions, those who perform work for your organization are employees and, therefore, generally must receive at least the minimum wage for hours worked.  The FLSA defines the term “employ” very broadly as including to “suffer or permit to work.”  There is, however, a circumstance under which the Supreme Court has held that the phrase “to suffer or permit to work” should not be interpreted to make an individual whose work serves only his or her interest an employee of another who provides instruction or assistance.  This carve-out applies to “interns.” 

The Department of Labor has created a six-part test that employers must satisfy in order to  have unpaid workers.  This test, which requires the employer to meet all six components, provides that an intern relationship exists when:

  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; and
  2. The internship experience is for the benefit of the intern; and
  3. The intern does not displace regular employees, but works under close supervision of existing staff; and
  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; and
  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.

While each of these six factors has been interpreted by the DOL and the Courts, the third and fourth factors typically are the ones that an employer has the most difficulty satisfying.  In fact, in the Glatt v. Fox Searchlight Pictures, Inc. (S.D.N.Y., No. 11-06784, 6/11/13) decision, these were precisely the criteria upon which the New York District Court focused.  In determining that individuals treated as “interns” during production of the movie Black Swan were, in fact, employees who should have been compensated for their work, the court explained that these individuals performed tasks that benefitted the employer and which, but for the “interns,” would have had to be performed by employees. 

Unfortunately for employers, these claims are becoming far more prevalent as employees and plaintiff-side attorneys recognize that many employers do not appreciate the intricacies of this area of wage and hour law.  In fact, as recently as last week, a class action intern-based law suit was filed against Conde Nast. 

There are several steps an employer can take to ensure that their “interns” are, in fact, interns and not employees who must be compensated for time worked.  First, the employer must become more familiar an facile with the DOL’s and courts’ interpretations of the regulations involving interns.  Second, if an employer wants to institute an internship program, it is recommended that such a program be memorialized in writing.  This program description should incorporate by reference the six-pronged test described above.  Third, the intern should sign a document making clear that he or she is, in fact, an intern and: (1) has absolutely no expectation of payment for the work performed and (2) has no guarantee or even expectation of employment following the internship.  Fourth, the organization should have established a formal complaint procedure that an intern (or, really, any employee) can use to dispute the way he or she is or is not being paid.  Finally, a correction procedure also should be created to make clear the intern, employee and DOL that, when mistakes are made, they promptly (read:  immediately) will be corrected.