Unpaid internships can provide individuals with much sought-after real world experience and a résumé enhancement. But employers face substantial risk if they engage unpaid interns to perform work that primarily benefits the employer.

Employers often misclassify temporary or seasonal workers as “interns,” when they are actually employees—eligible for minimum wage, overtime pay, and other employee entitlements. Indeed, courts and government agencies increasingly scrutinize such relationships. And interns today sometimes sue for what used to be accepted industry practices, particularly in the communications and entertainment industries.

Several recent cases have received extensive publicity. In New York, a federal judge held on June 11 that a movie distributor should have paid two former interns for their work on the film "Black Swan." The judge concluded that the “interns” were in fact “employees” because their work benefited the company without providing them a distinctly educational experience. “The benefits they may have received—such as knowledge of how a production or accounting office functions or references for future jobs—are the results of simply having worked as any other employee works, not of internships designed to be uniquely educational to the interns and of little utility to the employer.” The judge also approved the plaintiffs’ request to pursue their case as a class action. Glatt v. Fox Searchlight Pictures Inc. In another pending case, a number of former interns have sued the Hearst Corp., asserting Hearst owes them minimum wage and overtime pay for their work at various Hearst magazines. Wang v. Hearst. Separately, television journalist and producer Charlie Rose agreed in late 2012 to pay as much as $250,000 in back wages to settle a class-action suit with potential to include 189 former interns, according to The New York Times.

Federal courts apply various tests to determine whether an intern qualifies as an employee and is subject to minimum wage and overtime requirements. Some courts apply a “primary beneficiary” test which evaluates whether the internship primarily benefited the intern, or the employer. Other courts and the U.S. Department of Labor apply a six-factor “totality of the circumstances” test.

Employers can minimize risk and open doors to budding professionals by adhering to a handful of precautions when engaging unpaid interns. (Child labor or other student-learner subjects are beyond the scope of this brief advisory.)

Rely on the six-factor test

Although not all courts use it, reliance on the six factor test described in the U.S. Department of Labor’s Field Operations Handbook is the most conservative approach for employers and offers the least risk. Using that test, if the internship position satisfies all six factors, the individual is not an employee and is not entitled to compensation. The six factors are:

  1. Although the training includes actual operations of the employer’s facilities, the training should resemble that given in vocational school;
  2. The training should exist for the benefit of the trainees;
  3. Employers should gain no immediate advantage from the trainees’ conduct. (Indeed, occasionally employer’s operations may be impeded.);
  4. Trainees should not displace regular employees and businesses should closely supervise trainees’ work;
  5. Trainees should not necessarily expect a job at the end of the training period; and
  6. Employer and the trainees should understand that the intern is not entitled to wages.

But the individual “volunteered” to get experience so I am not liable, right?

Wrong. Individuals looking to get a leg up in the marketplace may try to “volunteer” to work. But even if the individual earns course credit for work, that alone does not satisfy the requirements of the FLSA. Employees are not allowed to waive their FLSA rights. Thus, intern relationship must satisfy the test used by the applicable court, the Department of Labor, and applicable state wage and hour agencies.

For public agencies or nonprofit organizations there is more room for individuals to “volunteer” without creating an employment relationship, so long as certain conditions are satisfied. However, public employees cannot “volunteer” to perform work that is already part of their regular duties. For private sector, for-profit employers, the rules are much stricter. Federal and state agency guidance dictate that these employers may not use unpaid “volunteers” to perform work. Please see USDOL’s guidance on volunteers.

Minimize risk

  • An internship must have a significant educational or vocational component.

The employer must prove that the nature of the intern’s activities directly relates to the educational and vocational objectives of the training and that the activities do not unreasonably displace the tasks performed by employees.

An intern should earn college credit or have a learning experience by observing the practical application of classroom instructions. The experience must do more than merely enhance the student’s marketability.

  • The program must benefit the students more than the employer.

The burden of administering the program and supervising the student interns should outweigh any incidental benefit provided to the employer.

  • The interns or trainees may not displace regular employees or do their work.

The student intern should shadow regular employees, not step into the place of a worker, directly performing the main work of the business, or actually working alongside regular employees while receiving little or no training.

  • The interns must be closely supervised.

Supervisors of interns must commit significant amounts of time to mentoring, teaching, and critiquing the activities of the interns.

Pay requirements

If an intern should be classified as an employee, the intern must be compensated no differently than any other employee. Unless other statutory exceptions and exemptions apply, the intern would usually qualify for overtime and minimum wage requirements. Federal law does allow businesses to pay “student-learners” less than minimum wage. See 29 C.F.R. §§ 519.1, et seq.; 29 C.F.R. §§ 520.500, et seq. However, only businesses in states that have enacted a comparable provision may take advantage of the federal sub-minimum wage.

Where can I get more information?

Check out the USDOL’s Fact Sheet #71.

In 2006, the USDOL published a useful opinion letter addressing the six-factor test in the context of university externs.

Best practices

  • Begin with the assumption that any person performing any job or task for you should be classified as an employee.
  • Never assume that anyone may lawfully “volunteer” or perform any work for you without being covered by wage and hour laws, particularly if you are a for-profit business.
  • Do not assume that every college student earning credit can be classified as an intern or trainee.
  • Confer with employment counsel before classifying a student as an unpaid “intern” or “volunteer.”
  • Be clear with interns, both in written and verbal communications, that the internship will not be paid and will not necessarily lead to employment.
  • Forms don’t provide automatic protection, but they can help in a close case. Have your counsel draft an internship agreement acknowledging the six factors.
  • When in doubt, classify a worker as an employee entitled to minimum wage and overtime.