Over the last couple of years, two federal agencies have demonstrated a heightened interest in whether unpaid internship positions are appropriately classified and whether individuals serving in those positions receive the protections of federal law. In an April 2010, the U.S. Department of Labor issued a fact sheet addressing whether internship participants should be considered employees for purposes of the Fair Labor Standards Act. If an employee under the FLSA, the individual must be paid at least the federal minimum wage and may be eligible for overtime compensation. The Department of Labor relies on six factors to determine whether an internship program is excepted from the FLSA:

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

Additionally, the U.S. Equal Employment Opportunity Commission has similarly provided comments recently on whether internship participants are eligible for the protections of federal Equal Employment Opportunity laws. These laws include Title VII of the Civil Rights Act of 1964, the Equal Pay Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act and the Genetic Information Nondiscrimination Act. Under these laws employees may be protected from unlawful discrimination or harassment based on a protected class status. In a December 8, 2011informal discussion letter, the EEOC explained that whether an internship is covered by these laws depends on whether the individual receives “significant remuneration,” such as a pension, group life insurance, workers’ compensation, or access to professional certifications. The EEOC information discussion letter explained that small benefits such as academic credit, practical experience, and scholarly research will not result in EEO law protection. However, if the internship is required for regular employment or regularly leads to paid employment, the intern is likely to be considered an employee for purposes of EEOC enforced laws.

Following on these federal releases, a recent case highlights the potential claims employers may face if internship positions are not properly classified under these laws. In Glatt v. Fox Searchlight Pictures Inc., 11CV6784, out of the Southern District of New York, unpaid interns on the set of the 2010 Oscar-nominated film Black Swan brought suit against the production company for violations of the Fair Labor Standards Act. The plaintiffs allege they did not receive minimum wages or overtime compensation, among other claims, that should have been realized. In support of the allegations, one plaintiff stated his duties included “[p]reparing documents and spreadsheets to track and reconcile purchase orders, invoices, and petty cash, and travelling to set to obtain signatures from the relevant managers or supervisors to authorize payments.” Another claimed he worked “sometimes as many as 50 hours per week” completing such duties as “[p]reparing coffee … ; [t]aking and distributing lunch orders … ; [t]aking out the trash … ; [and c]ollecting receipts and preparing expense reports … ” A June 11, 2012 order in Glatt v. Fox Searchlight Pictures Inc. required the employer to turn over contact information for all previous interns to the class action plaintiffs.

Employers large and small can face significant damages if found in violation of laws such as the FLSA. In Glatt v. Fox Searchlight Pictures Inc., the plaintiffs alleged damages in excess of $5,000,000. This figure may be a reality for a large employer with an extensive internship program where many individuals may be considered in calculating minimum wages or overtime compensation owed. For an employer with fewer employees, even one individual who should be compensated for an entire summer of work can be significant to the bottom line.

Employers with internship programs should conduct an audit now to confirm participants are not employees and reduce the chance of facing such liability tomorrow. Experienced counsel can assist to determine whether an individual is properly classified as an unpaid intern or how a program can be modified to comply with federal law as an unpaid internship. Additionally, employers should consult counsel to ensure they are in compliance with any state wage laws that might apply. In Bickerton v. Charles Rose et al., out of New York state court, the employer faces claims similar to those under the FLSA but based on New York law. Small steps such as these can help prevent extensive liability in the future and make sure your internship program continues to be a success.