Navigating unpaid internships and avoiding wage violations

With summer break upon us, many employers open their doors to college students in the form of paid and unpaid internships. For the employer, the unpaid summer internship can be a valuable recruiting and screening tool. For the intern, a few weeks in the “real world” can get a foot in the door of a dream job, provide valuable on-the-job experience, or simply add to an otherwise hollow resume.

However, if care is not taken to define and respect the limits of the relationship, an unpaid internship could result in a wage audit by the U.S. Department of Labor (DOL) or serve as the grounds for the student’s first federal lawsuit to recover unpaid wages.

When this happens, the employer must be ready to show the internship was exempt from the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA). Whether the intern is an “employee” due wages for the internship depends on whether the intern is the “primary beneficiary” of the relationship.

If the employer is the “primary beneficiary,” the intern must be paid. While this is not an all-or-nothing test and no one factor is dispositive, the DOL has provided the following factors to guide employers in determining whether its summer interns are due minimum wage and overtime.

• The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa. It is essential for the employer to spell this out in a signed writing on the front end of the internship.
• The extent to which the internship provides training similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions. An intern receiving hands-on training and credit hours as a prerequisite to sitting for a state licensing exam will in most cases be considered exempt from the FLSA’s minimum wage and overtime requirements.
• The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar. If the intern is studying to become a coach, then an internship shadowing the defensive coordinator for the college football team during the summer practices will, in most cases, be considered exempt from the FLSA’s minimum wage and overtime requirements so long as the arrangement does not hinder the intern’s academic obligations.
• The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning. An unpaid internship should be for a fixed, abbreviated length of time that is spelled out in a signed writing before the internship begins.
• The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern. As an employer, it is important to consider whether your operation runs more efficiently due to the presence of the unpaid intern. If your unpaid intern regularly “takes up the slack” for other employees who are busy performing other tasks, the employer is likely receiving the primary benefit from the relationship.
• The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship. If an internship program is nothing but a formality to receiving a job offer, then the program will most likely be considered employee training for which the intern should be compensated.

In summary, the employer should ask the following questions: Does the intern understand, at the outset, that the internship will be unpaid, run for a fixed length of time, and not necessarily result in a job offer? Is the employer providing training similar to that provided in an educational environment and developing skills the intern can use outside of the employer’s operation? Is the employer vigilant in preventing the intern from performing the work of its regular employees? Is the intern under close supervision?

Considering these questions should reveal any glaring errors in classification. Still, given the numerous factors and the gray areas that arise in real time, the best course for those employers offering unpaid internships is to work with experienced employment counsel to ensure the business is not unintentionally opening itself up to costly litigation.

Editor’s note: Brett Taylor is an attorney with the Rose Law Firm in Little Rock. The opinions expressed are those of the author.