Gladstone Michel Weisberg Willner & Sloane ALC

publications

Employment Law Update: Beware of the Unpaid Internship, Most of Them Are Illegal

By Teresa R. Tracy

The economy remains sluggish.  Employers are looking for ways to keep their businesses going on reduced revenues.  Many workers, especially students, are eager to gain valuable employment skills and to get a foot in the door.

Many workers are willing to work unpaid for this chance. 

Before you decide to hire an unpaid intern, you need to be aware of certain government wage and hour laws so you can avoid legal problems and stay in compliance with the law.

The United States Department of Labor (DOL) recently announced it is stepping up enforcement nationwide on employers who improperly classify workers, specifically mentioning unpaid interns.  The DOL’s Field Operations Handbook identifies six criteria, all of which must be met, in order to permissibly allow trainees or students to perform work but not be treated as employees under federal law:

1. The internship should be similar to the training provided in an academic or vocational setting.

2. The training received by the intern must be for his or her own benefit.

3. The interns can’t be used to replace paid employees.

4. The training must be general, not for the immediate advantage of the business, and it may even impede operations

5. Both parties agree that no job is promised at the end of the internship.

6. Both the employer and the intern must agree that the internship will be unpaid.

In April 2010, the DOL issued a Fact Sheet containing a further discussion of what is necessary to have an internship that does not violate the law. The April Fact Sheet reiterates these six criteria and provides further explanation on how to interpret them.  The DOL is quite clear:  all of the criteria must be met.  If not, the “intern” will be deemed an employee and thus entitled to be paid for all time worked at no less than the minimum wage, including possible back pay. 

In an April 7, 2010 Opinion Letter, the California Division of Labor Standards Enforcement (DLSE) clarified its test for determining when training and internship programs do not create an employer-employee relationship and thus are not subject to California's minimum wage law.  There is no state statute or regulation that expressly exempts persons participating in an internship from the minimum wage and overtime requirements.  The Opinion Letter notes that in the past, the DLSE has used an 11-factor test to determine a valid internship, the six DOL criteria plus five more as follows: 

7. Any clinical training is part of an educational curriculum.

8. The trainees or students do not receive employee benefits.

9. The training is general, so as to qualify the trainees or students for work in any similar business, rather than designed specifically for a job with the employer offering the program, i.e. upon completion of the program, the trainees or students must not be fully trained to work specifically for only the employer offering the program.

10. The screening process for the program is not the same as for employment, and does not appear to be for that purpose, but involves only criteria relevant for admission to an independent educational program.

11. Advertisements for the program are couched clearly in terms of education or training, rather than employment, although the employer may indicate that qualified graduates will be considered for employment.

The DLSE Opinion Letter acknowledged that these additional criteria did not appear to be based on any state law or regulation.  It went on to note that in 2000, the DLSE applied a six-factor test for the trainee/intern under an economic realities test in which the six factors different, in part, from the DOL’s six criteria.  The Opinion Letter went on to decide that the DOL’s six factors would be used in the situation addressed in the Opinion Letter, i.e., an internship program administered by a non-profit organization that was aimed at developing fundamental job skills and technical skills in information technology for 18-24 year olds; the second phase of this program placed enrollees with a non-profit or for-profit businesses   The DLSE concluded, after a 17-page fact-intensive analysis, that the enrollees would not be treated as employees of the businesses.

While the DLSE Opinion Letter suggests that the state agency may be taking a slightly looser, “real-world” approach to this issue, employers should keep in mind that the Opinion Letter addressed only those detailed facts of the situation under consideration and that it is not a carte-blanche invitation to open the doors to internships.

Furthermore, the federal government remains on the lookout for employers who skirt the federal wage and hour laws under the guise of internship.  Since an employer must be in compliance with all applicable laws, an internship relationship that is permissible under state law can still constitute a violation of federal law. 

If you are considering using unpaid interns over the coming summer months or at any time, consult with counsel to make sure you are in compliance with both state and federal law.

This Alert is published as a service to our clients and friends. It is intended for informational purposes only and is not intended to constitute advertising, solicitation or legal advice.

©2010 Gladstone Michel Weisberg Willner & Sloane, ALC. All Rights Reserved.