Navigating the Legal Waters of the Unpaid Internship
Emily J. Bordens, New Jersey Law Journal
As summer is now in full swing and students have joined the professional workforce, employers must be sure to familiarize themselves with the law pertaining to unpaid internships. Amid a continuing wave of lawsuits initiated by unpaid interns against their former employers, companies must pay particular attention to the Fair Labor Standards Act (FLSA), in addition to state and local laws, which may view unpaid interns as “employees”—having a non-waivable right to be paid at least the minimum wage and overtime wages for work performed in excess of 40 hours per week.
Because the FLSA defines the term “employ” very broadly, the U.S. Department of Labor (DOL) utilizes a broad definition of “employees.” DOL Fact Sheet #71 provides some guidance on how to structure an internship so that it fits within a narrow exception to the FLSA employee wage requirement. According to the Fact Sheet, there are six criteria that must be met in order to show the absence of an employment relationship:
- 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;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- 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;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
This means that in order to hire unpaid interns, you must meet all six of the above factors to remain in compliance with federal law.
New Jersey Employers
Employers in New Jersey must be sure to comply with both the federal and state law regulating internships. In addition to satisfying the U.S. DOL criteria above, employers in New Jersey must meet the following nine additional requirements:
- The training is for the primary benefit of the trainee;
- The employment for which the trainee is training requires some cognizable trainable skill;
- The training is not specific to the employer, that is, it is not exclusive to its needs, but may be applicable elsewhere for another employer or in another field of endeavor;
- The training, even though it includes actual operation at the facilities of the employer, is similar to that which may be given in a vocational school;
- The trainee does not displace an existing employee on a regular job nor supplement a regular job, but trains under close tutorial observation;
- The employer derives no immediate benefit from the efforts of the trainee and, indeed, on occasion may find his or her regular operation impeded by the trainee;
- The trainee is not necessarily entitled to a job at the completion of training;
- The training program is sponsored by the employer, is outside regular work hours, the employee does no productive work while attending and the program is not directly related to the employee’s present job (as distinguished from learning another job or additional skill); and
- The employer and the trainee share a basic understanding that regular employment wages are not due for the time spent in training, provided that the trainee does not perform any productive work.
See N.J.A.C. 12:56-2.1.
New York Employers
Like their New Jersey counterparts, employers in New York must navigate a myriad of intersecting laws. Compliance with New York state law requires employers to meet the six U.S. DOL criteria above, as well as the following five additional criteria:
- Any clinical training is performed under the supervision and direction of people who are knowledgeable and experienced in the activity.
- The trainees or students do not receive employee benefits.
- The training is general, and qualifies trainees or students to work in any similar business. It is not designed specifically for a job with the employer that offers the program.
- The screening process for the internship program is not the same as for employment, and does not appear to be for that purpose. The screening only uses criteria relevant for admission to an independent educational program.
- Advertisements, postings, or solicitations for the program clearly discuss education or training, rather than employment, although employers may indicate that qualified graduates may be considered for employment.
See N.Y. Department of Labor, Fact Sheet, Wage Requirements for Interns in For-Profit Business.
Recent private settlements between employers and their former unpaid interns demonstrate that hiring unpaid interns can actually be quite costly. From 2014 to 2015, NBCUniversal, Condé Nast and Viacom all settled FLSA class action lawsuits brought by unpaid interns for payments ranging from $5.8 to $7.2 million. In March, Dualstar Entertainment Group reached an $140,000 settlement with its unpaid interns. So as to minimize risk, we recommend that employers consider the following:
- Partner with Colleges and Universities. An internship that is structured around an academic experience is less likely to be considered employment. Companies can achieve such a structure by partnering with an academic institution that will oversee the internship and offer academic credit for it. As summer internship season is already underway, we recommend companies contact the career services departments of local colleges and universities to see if their internships may be provided for credit.
- Provide Job Shadowing Opportunities.Companies cannot use unpaid interns to perform clerical or menial work in place of other employees. Rather, a company wishing to utilize unpaid interns must provide them with skills that can be used in other settings. Therefore, companies would be wise to provide interns with shadowing opportunities whereby, instead of contributing productive work to the company’s operation, the interns learn under the direct supervision of a regular employee.
- Designate an Employee to Oversee the Internship Program. This is a good way for companies to monitor an intern’s experience at the company and ensure that it does not sway toward employment. The employee should schedule regular meetings with the interns to check in and perform periodic reviews.
- Fix the Time of the Internship.Companies should establish a fixed time period for the internship that accommodates the intern’s academic calendar. This will help dispel any notion that the internship is an extended interview for future employment and will reinforce the educational context of the internship.
- Memorialize the Arrangement in Writing.Before commencing the internship, companies should have their interns sign an acknowledgment that they have no expectation of being hired or of receiving compensation.
The Bottom Line
The best approach is to pay the minimum wage. Given the numerous lawsuits with which unpaid interns have flooded the courts recently and the various expensive settlements that have followed, companies may be best served by simply paying their interns the minimum wage. Not only will this avoid any headaches and potential legal fees, but it will also likely result in superior work product from the interns. It is also advisable to consult with legal counsel to help minimize risk and ensure compliance with federal and state law.