The Willow’s Inn, Washington’s most expensive restaurant, recently agreed to pay nearly $150,000 in back pay and penalties after a Department of Labor investigation revealed entry-level employees working in a “staging” or apprenticeship program were denied fair compensation. The restaurant employees began on a trial basis, working for one-month without pay, and then were paid below state minimum wage while working labor-intensive 14-hour days.

At a time of year when many private companies are taking on interns, this case is a good reminder of the impact of state and federal wage and hour regulations.

For-profit entities are required to pay all persons who are “employed,” which is broadly defined to mean “suffer or permit to work.” Unpaid training programs and internships in the private sector may be allowed, but only if all of the following Department of Labor criteria are met:

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.

If a private-sector company fails to satisfy any one of these requirements, a worker is considered an employee and must be paid at least minimum wage.

Unlike the private sector, nonprofits and government organizations usually are permitted to offer unpaid internships, even if the intern provides services of value to the organization.