Amidst high unemployment and continued cutbacks at many companies, unpaid internships have become increasingly common in the private sector. According to recent published reports, the U.S. Department of Labor (DOL) and several states have announced their intent to step up their enforcement of wage and hour laws as they apply to such interns. Thus, employers that utilize unpaid interns should be aware of the requirements of both federal and state law that may apply to such individuals.

Unlike nonprofit organizations, which can legally utilize volunteer labor, for-profit employers can only utilize unpaid interns if they comply with the Fair Labor Standards Act (FLSA). According to the DOL, to be exempt from the FLSA’s overtime and minimum wage provisions, an intern must be a “trainee” and not an employee.

The DOL has developed the following six criteria that must be met for an individual to qualify as a trainee and thus be eligible for an unpaid internship with a for-profit company. If these conditions are met, the worker qualifies as a trainee and an employment relationship is not established, and thus the overtime and minimum wage requirements do not apply to such individual:

  1. The training, even though it includes actual operation of the facilities of the employer, is similar to what would be given in a vocational school or academic educational instruction.
  2. The training is for the benefit of the trainees.
  3. The trainees do not displace regular employees, but work under their close observation.
  4. The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded.
  5. The trainees are not necessarily entitled to a job at the conclusion of the training period.
  6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.  

The DOL has recently explained that “[b]ecause the FLSA’s definition of “employee” is broad, the excluded category of “trainee” is necessarily quite narrow. Moreover, the fact that an employer labels a worker as a trainee and the worker’s activities as training . . . does not make the worker a trainee for purposes of the FLSA unless the six factors are met.” DOL Advisory: Training and Employment Guidance Letter No. 12-09, Jan. 29, 2010, at 8. In each instance, the specific facts and circumstances of a worker’s activities must be assessed to determine whether the individual qualifies as a trainee. For example, the more a training program resembles a classroom or academic setting, providing skills widely applicable in employment settings, the more likely the individual would be deemed a trainee. By contrast, an individual engaged in the employer’s actual operation, learning skills applicable only to one employer, is more likely to be found to be an employee.  

Under the DOL criteria, if an employer uses an intern as a substitute for a regular worker, or would need to hire an additional employee if the intern was not able to perform the work, the intern would likely be deemed an employee. Similarly, if an intern receives the same level of supervision as regular employees, rather than shadowing opportunities or a more closely supervised training program, he or she would likely be considered an employee for purposes of the FLSA and must be compensated according to minimum wage and overtime provisions.

Government agencies responsible for enforcing wage and hour laws are concerned that while unpaid internships are becoming more common, there may be little incentive for interns to report potential violations of federal and state wage laws. That is because interns often value the experience obtained during internships, even if they are not compensated with a paycheck for the hours worked. As a result, some states, including New York, California, and Oregon, have begun to enforce potential wage and hour violations by launching investigations into internship programs and fining employers where applicable.  

As the season for summer college internships quickly approaches, employers should be mindful of the DOL’s criteria for unpaid internships and the potential for increased enforcement of state and federal wage laws.