The popularity of unpaid intern programs—interest in which spiked during several of the economic downtowns in recent years—may be waning as they continue to come under scrutiny by the Department of Labor (“DOL”) and courts. 

In April 2010, the Wage and Hour Division of the DOL issued Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act, which was intended to provide general information to help determine whether interns must be paid the minimum wage and overtime under the Fair Labor Standards Act (“FLSA”) for the services they provide.

The guidance applies to “for-profit” private sector employers, noting that unpaid internships in the public sector and for non-profit charitable organizations are “generally permissible.”  The test has a number of requirements, all of which must be met in order for the internship not to be regarded as employment.  Employers have found a few of the criteria—namely, that the intern is not entitled to a job at the conclusion of the internship, the employer and intern understand that the intern is not entitled to wages, and the intern does not displace a regular employee—not too unwieldy to overcome as long as it is clear that the internship is not a trial period for employment and is of fixed duration.

Several of the remaining provisions in the guidance, however, have proven somewhat more onerous for employers.  For example, the internship needs to be similar to training that would be given in an educational environment, which can occur by the intern receiving educational credit for the internship.  Also, the internship must be for the benefit of the intern and the employer cannot derive any immediate advantage from the activities of the intern. 

A wave of lawsuits filed by unpaid interns has sprung up in recent years.  The responses of the courts and the companies being sued to these cases have varied.  The Second Circuit currently is hearing consolidated appeals related to two different conclusions reached by federal district courts in cases brought against Fox Searchlight Pictures and publisher Hearst. 

While many employers are closely watching the Second Circuit’s treatment of the Fox and Hearst intern appeals to determine the fate of their internship programs, some employers have decided not to wait and have restructured or closed their internship programs. 

At a minimum, with the arrival of summer, employers should take the time to carefully review their unpaid internship programs and assess the continued viability of such endeavors.  In April, legislation was enacted in New York City clarifying that interns, whether paid or unpaid, are protected from discrimination and harassment, adding even yet another consideration for employers in this arena.