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Posted: July 01, 2013

Errands and copies and joe, oh my!

The landscape has changed for employers and interns

Nathan Schacht and Xakema Henderson

For years, unpaid interns have been a staple in numerous, high profile industries. Recently, however, these internships have faced the scrutinizing eye of the Department of Labor (DOL) and plaintiffs’ attorneys eager to organize class-wide relief.

From New York to California, employers are facing class actions from interns claiming they are actually employees and must be paid. As a result, the rising tide of class action lawsuits over unpaid internships has employers hesitant to take on eager interns who are willing to work for free. Although improper classification of interns and the liability that results is a serious concern, employers should consider their compliance obligations before deciding to wholly bar these positions.

Internships, paid or unpaid, can be tremendously beneficial for students if they are beyond the Devil Wears Prada-esque type, where interns mainly fetch coffee and dry cleaning.  But it is not just the interns who benefit from the experience. Internship programs offer employers the benefit of a more experienced potential workforce. However, if a majority of employers simply resort to paying their interns, fewer internships may be available, resulting in less opportunities and a smaller pool of qualified candidates.   

How can employers continue providing unpaid internships while avoiding the risk of lawsuit? The answer is not as daunting as it seems.

The Fair Labor Standards Act (FLSA), the federal law governing workplace wage and hour issues, provides six-factors to determine whether a person may be qualified as an unpaid intern. If all of the following six factors apply, the intern is not an employee and therefore does not have to be compensated:

  1. The internship, even though it includes actual operation of the employer’s facilities, is similar to training that would be given in an educational environment;
  2. The internship experience is for the intern’s benefit;
  3. The intern does not displace regular employees but works under the existing staff’s close supervision;
  4. The employer providing the training derives no immediate advantage from the intern’s activities, and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the internship’s conclusion; and
  6. The employer and the intern understand that the intern is not entitled to wages.

 

Some states also have additional requirements. New York, for example, has five additional factors, including not providing interns with employee benefits such as health insurance.  Whether the employer must adhere to six or 11 factors, the theme is clear: internships should be educational opportunities for students, not free labor for employers.

Employers can take a few measures to facilitate compliance with the FLSA factors. First, teaming up with schools so students receive credit for the internship is an easy way for employers to have the benefit of unpaid interns without the fear of a lawsuit. Programs structured around an academic experience, rather than the employer’s regular business, are viewed more approvingly by the DOL.

This structure also ensures that the internship has a finite duration, which is a key element to an internship. During the internship, the intern may perform tasks otherwise performed by employees if the employer is not dependent upon the intern’s performance of those tasks, and the employer supervises them more closely than an employee. A good rule of thumb is that the internship is a learning experience for the intern and provides only incidental benefits to the employer.

Examining the facts of recent lawsuits sheds light on these criteria and how internships must be structured. In a June 2013 decision, a New York federal court determined that interns at Fox Searchlight working on the movie Black Swan were employees and should be compensated for their work.

The “interns” had performed the work of production assistants, bookkeepers, secretaries and janitors. A number of interns worked more than 40 hours a week, and some more than 10 hours a day. One week following the Fox decision, three unpaid interns filed suit against Gawker Media, claiming they were underpaid or not paid for regularly providing writing and editing services to the company.

These cases illustrate that employers must re-analyze their internship programs in accordance with the applicable laws and regulations requiring compensation for interns. 

Although the multitude of articles discussing the recent cases suggest that employers should abandon their unpaid internship programs (a point well-taken for some employers), others may still salvage these programs for the benefit of both employer and intern. To do so, employers should consult with knowledgeable counsel to ensure that they steer clear of finding themselves in the next unpaid intern headline.

Nathan Schacht is an associate with BakerHostetler. His practice focuses on employment litigation and counseling with an emphasis on providing guidance to employers. Reach him at nschacht@bakerlaw.com. Xakema Henderson is a student at University of Colorado Law School and a summer associate in BakerHostetler’s Denver office.

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