Unpaid Internships: A Violation of Minimum Wage Requirements?

“Who is that kid?” That is the first question asked upon seeing a twenty-something, college student who is showing up for the first day of his or her summer internship. Now, according to the U.S. Department of Labor, there needs to be a second question—“should we be paying that kid?”

For decades, unpaid internships have been common in the American workforce. Intern Bridge, a firm that conducts research on internships, estimates that undergraduate students work in more than one million internships a year—half of which are unpaid. Undoubtedly, an internship can provide a valuable, hands-on learning experience to a young professional.

Supporters of unpaid internships argue that if employers are forced to pay an intern, then the employer will simply hire a normal employee and it will become more difficult for students to find internships. Critics argue that unpaid internships exploit college students and cause normal employees to lose jobs because the students are willing to work for free. Also, critics point out that unpaid internships unfairly benefit students from wealthy families because many students could not afford to take an unpaid position. Supporters counter that unpaid internships are a voluntary exchange—if a student wants to work for free and a company wants to give the student an opportunity, why should laws interfere?

Regardless of which side of the debate you may personally fall, companies need to ensure they are in compliance. Until recently, courts had not been confronted with the question of whether unpaid internships violate federal and state minimum wage laws. Now, however, the issue has become an increasingly popular source of litigation.

In June of 2013, a Federal District Court in New York ruled that Fox Searchlight should have been paying interns that worked on the production set of “Black Swan,” a movie that was released in 2010. Although Fox is appealing the ruling, the case provides some helpful guidance for companies that offer unpaid internships.

An intern can either be a “trainee” or an “employee.” Interns in the for-profit, private sector who qualify as employees (not trainees) must be paid at least the minimum wage and overtime for hours worked over forty in a workweek. It is important to note that these requirements only apply to the private sector; unpaid internships in the public sector and non-profit charitable organizations are permissible.

A Department of Labor fact sheet helps for-profit businesses determine whether its interns need to be paid.It gives six general criteria to examine:

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 at the internship.

Relating to the first factor, the interns in the Fox case learned how the coffee maker and photocopier operated on this particular movie set, along with how the company watermarked its movie scripts. An educational environment teaches skills that a person can use for many different employers in an industry. The court reasoned that the new skills the interns learned at Fox were the same skills that Fox’s normal employees learned through on-the-job training. Stated more simply, the internship was not designed to be more educational than a paid position.

Next, the court looked at who really benefited from the internship. The interns could put the internship on their job resumes and acquire some job references in the process—not to mention the experience itself. Surely this is a benefit, right? The court said such incidental benefits were available from any working relationship and “not the result of internships intentionally structured to benefit the interns.”

Also, the court rationalized that Fox was the true entity that benefited from the unpaid work. The interns were organizing filing cabinets, taking out trash and running errands for free. Normally, a paid employee would have done these tedious, yet essential activities. Thus, Fox was benefiting from the intern by having an unpaid worker do work that normally a paid employee would perform (see factors two, three and four listed above).

There was no evidence that the interns were entitled to positions at Fox at the end of the internship. Also, the interns understood that they would not be paid for the internship. These factors support a finding that the interns did not need to be paid. However, the court found that the “totality of the circumstances” showed that the interns should have been paid.

According to the court in Fox, to qualify as an unpaid internship, the internship should be “designed to be uniquely educational to the interns and of little utility to the employer.” The internship program should resemble an academic setting or vocational school. Many employers justify unpaid internships by offering academic credits. However, the Fox court said that academic credits do not automatically entitle an employer to circumvent minimum wage laws.

Employers may have to actually impede their own productivity to offer opportunities to an intern that would not be available to a regular employee. This situation could arise when an unpaid intern has the opportunity to “job shadow” a regular employee but does not actually perform any work. Notice how such a situation would benefit the intern but not the employer (see factor four above).

In December 2012, Charlie Rose’s PBS talk show settled a class-action suit filed on behalf of unpaid interns for approximately $110,000. In the summer of 2013 alone, unpaid interns have brought suits against P. Diddy, MTV, Fox Soccer Channel, Warner Music Group, Condé Nast, Nickelodeon, MSNBC, Saturday Night Live, Gawker, and the Pittsburgh Power arena football team, among other employers. These cases are just getting started. The rulings that will come from these courts in the upcoming months will give employers some more guidance.

Notably, the cases so far have been mostly centered in New York and Los Angeles as unpaid interns have been attacking companies in the entertainment industry. However, it is a matter of time before similar issues are brought against other private businesses. Other unpaid internship cases, both of which are still in the beginning stages of litigation, have already been brought against a law firm and a marketing/public relations firm. Even the White House, which legally has unpaid interns because it is in the public sector, has recently felt pressure from critics of unpaid internships.

Despite the prevalence of unpaid internships, there are now liability risks associated with such programs. Inevitably, and perhaps unfortunately, the threat of litigation will cause employers to take a hard look at their internship programs. Businesses should consider having an employment lawyer review their particular internship program to determine if it falls within the appropriate guidelines.

Upcoming Webinar: "You Like Me! You Really Like Me!"

On November 19th, Kevin Nelson, will host an informative webinar providing updates on employment law and social media. It will cover the latest in trends and cases, and the NLRB's position regarding social media use and governance.

Space is limited. Reserve your Webinar seat now at: https://www2.gotomeeting.com/register/959414610

We Make the Rules

The following is cross-posted from the personal blog of Kevin Nelson, partner at Huddleston Bolen LLP.

An open letter from the Miami Dolphins:

Jonathan Martin didn't get it. And neither do you. It's not that we're above the law. It's that we make the law, we are the law. An entirely different ethos applies here -- we decide what's wrong and what's right, even what's black and what's white. (More...)

OSHA Taking Aim at Silica Exposure in Fracking Sites

The following article was originally published in Huddleston Bolen's blog, The Energy Connection.

The use of hydraulic fracturing in upstream oil and gas operations has increased significantly in the past several years as a result of new technologies that have provided increased access to oil and gas deposits located in deep rock formations.  Hydraulic fracturing operations inject a fracturing fluid into the ground, which contains “proppants” that help hold open fractures in the rock formations created by the fracturing fluid and force the gas into the well bore.  One of the primary proppants used in hydraulic fracturing fluids is sand, which can contain up to 99% silica.

Workers who are exposed to high levels of silica dust can contract a disease called silicosis, which can lead to lung cancer and other disabilities and death.  OSHA, which has jurisdiction ... (More).

Being Prepared For a DOL Visit (Podcast)

Huddleston Bolen Partner, Ashley French, led a USLAW Radio Podcast reviewing steps employers can take to be prepared for a US Department of Labor visit. Click here for a link to the 10 minute broadcast.

Are You Ready for a Wage and Hour Audit?

The following article by Ashley French and Todd Bergstrom was published in the Fall/Winter 2013 Issue of the USLAW Magazine. It provides useful tips employers can use to prepare for a Wage and Hour Audit by the Department of Labor. Click here for the full article.

Criminal Background Checks in the Hiring Process

Let’s pretend an employer utilizes the following policy when it comes to hiring job applicants: “We don’t care if you are Caucasian, African American, Hispanic or Latino—if you have ever been arrested or convicted of any crime, then you will not be hired.”

Does this policy discriminate among applicants based on race? The easy answer is no. After all, the employer is only looking at the applicant’s criminal record, not the applicant’s race. However, the Equal Employment Opportunity Commission (“EEOC”) does not believe the answer is that simple.

According to the EEOC, statistics show that “about 1 in 17 White men are expected to serve time in prison during their lifetime; by contrast, this rate climbs to 1 in 6 for Hispanic men; and to 1 in 3 for African American men.” Thus, when an employer has a blanket policy that disfavors applicants with criminal backgrounds, the employer is indirectly discriminating against minorities.

This is what the EEOC refers to as a “disparate impact.” At first glance, the employment policy does not appear to discriminate based on race or national origin. However, when the policy is applied, it has a disproportionate and adverse impact on members of a minority group. Accordingly, the EEOC claims that such an employment practice may be a violation of Title VII. The EEOC’s stance on the issue applies to private employers, as well as federal, state and local governments.

Statistics show that 9 out of 10 employers subject at least some, if not all, of their job applicants to criminal background checks. Which makes sense, right? Employers want to avoid issues with theft, fraud, workplace violence and negligent hiring. Even the EEOC itself conducts criminal background checks as a condition of employment!

So what can employers do to ensure compliance with the EEOC? Employers cannot have a blanket policy, even if it is “race neutral,” that excludes all applicants from being hired due to convictions or arrests. Based on the current EEOC guidance, employers with such policies are risking a charge of racial discrimination for deciding not to hire a minority who may have a conviction or two in the past.

Rather, employers need to be able to show that a decision to not hire an applicant based on a criminal background was “job related and consistent with business necessity.” This can usually be shown if employers follow a two-step process.

First, the employer should conduct a “Targeted Screen.” Here, it is imperative that employers link specific criminal conduct with risks that are related to the duties of a particular job position. For example, an old drug possession conviction may have no real relevance to a retail position now. Conversely, a recent embezzlement conviction would be problematic for a job where handling money is required. Based on the nature of the job, employers should only exclude those applicants who have certain criminal histories from working in a particular job position.

Second, the employer should conduct an “Individualized Assessment” of all the applicants who were excluded through the targeted screen. Obtain information from the applicant about the reported criminal history and allow the applicant to explain any special circumstances regarding the criminal conduct. For example:

• Consider the facts or circumstances surrounding the offense or conduct 
• Look at the number of offenses or convictions 
• Consider how long ago the activity occurred 
• Look at employment and character references 
• Consider length and consistency of previous employment 
• Determine any rehabilitation efforts, such as education, training or serving a sentence 

Further, the EEOC recommends that employers do not ask about convictions or arrests on the actual job application. Rather, the EEOC suggests that an employer wait until late in the hiring process to ask about a criminal background—this allows an employer to objectively assess the applicant’s qualifications and experience before turning to the criminal history. Then, when an employer does inquire into criminal history, the EEOC recommends that an employer only ask about convictions or arrests that are related to the job in question.

Additionally, employers should understand how the EEOC differentiates between arrests and convictions:

• Arrests do not always establish that criminal conduct occurred. Many arrests do not result in criminal charges, or the charges could have been dismissed. Therefore, an exclusion based on an arrest, by itself, is not job related and is not a business necessity. However, an employer may make an employment decision based on the conduct underlying an arrest if the conduct makes the individual unfit for the position in question. Essentially it is the conduct, not the arrest, that is relevant for employment purposes. 
• Convictions, however, will usually give an employer sufficient evidence that a person engaged in a particular conduct. This does not mean that the employer is free to rely on the conviction record alone when making an employment decision. Rather, the employer must look into the circumstances (nature of the crime, nature of the job, results of individualized assessment) and not make a decision on the conviction record alone. 

As a final point, employers also need to understand that these same principals apply when determining whether to promote an existing employee. For example, let’s say a Hispanic employee of fifteen years applies for a promotion to an executive position. The employer conducts a background check because it views a criminal record as an indicator of untrustworthiness and irresponsibility. It turns out that the employee was arrested for disorderly conduct twenty years ago. The employer’s policy does not allow any person with an arrest record to hold an executive position. Accordingly, the employer denies the employee’s promotion. The EEOC believes this situation would likely be a violation of Title VII.

Employers need to take off the blinders and look closely at what criminal background reports reveal. It is important to measure the applicant for the specific job in question. Long gone are the days where an employer can rely on a defense of “we never hire anyone with a conviction or arrest record.”

In August of 2013, a U.S. District Court in Maryland dismissed a lawsuit brought by the EEOC that alleged Freeman, Inc., an event-marketing company, unlawfully relied upon criminal background checks. The Judge ruled that Freeman’s use of criminal checks appeared reasonable and suitably tailored to its purpose of ensuring an honest workforce. Freeman limited its review to convictions in the last seven years and did not penalize applicants for arrests that did not result in convictions. Also, the Judge held that the EEOC did not have reliable statistics to prove that Freeman’s policy had a disparate impact on minorities.

Although this case was a victory for employers who conduct background checks, the EEOC has shown no signs of backing down from its position. In fact, the EEOC recently filed similar complaints against Dollar General and BMW.

Federal, state and local laws may prohibit employees with certain criminal records from holding particular job positions. For example, federal law prohibits a person with certain types of convictions from working as an airport security guard if the conviction is less than ten years old. West Virginia law prohibits a person with a felony conviction from holding a position as an emergency call dispatcher. The EEOC may find that an employer uses an unfair hiring policy even though the policy is required by state law.

Laws can vary greatly depending on the employer’s state and the job position. For this reason, employers should consider having an employment lawyer review their particular hiring policy to determine if it falls within the appropriate guidelines.

See: EEOC Enforcement Guidance Number 915.0002, Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964 (April 25, 2012).


About the Authors
Kevin Nelson and Ashley French are partners and Alex Greenberg is an associate in Huddleston Bolen’s Charleston, WV office.

National Labor Relations Board Orders New Contractual Provisions

Employers that require their employees enter into contracts with extensive Confidential Information and Non-disparagement provisions should take note of the National Labor Relations Board recent order concerning Quicken Loans’s contractual provisions. In 2011, Quicken sued Lydia Garza, a former mortgage banker with the company, to enforce the non-confidentiality, non-compete agreement in their contract. Garza then filed an unfair labor practice complaint alleging that Quicken had violated Section 8(a)(1) of the National Labor Relations Act (“NLRA”).

Section8(a)(1) prohibits employers from creating regulations that “chill,” or impede an employee’s Section 7 rights. Section 7 generally give employees the right to self-organize for the purposes of collective bargaining, and to engage in activity designed to bring about collective bargaining. An employer can impede an employee’s Section 7 rights in numerous ways. For example, the NLRB has held that a rule that prohibits employees who are subject to investigation from discussing the matter impermissibly impedes on these rights. Additionally, any work rule that impedes an employee from speaking to a peer about their Section 7 rights is a violation of the NLRA.

In Quicken’s case, the Confidentiality provision required employees to maintain any non-public information relating to personnel lists and personal information of co-workers “in the strictest of confidence.” The Non-Disparagement provision prohibited employees from publicly criticizing, ridiculing, or defaming the company. The Administrative Law Judge ruled that the Confidentiality provision violated Section 8(a)(1) because the restrictions substantially hinder employees’ ability to self-organize by prohibiting them from sharing with coworkers the names, wages, benefits, and contact information of other employees. Regarding the Non-Disparagement provision, the judge also ruled that the language of the employer’s provision inhibits the employee’s ability to engage in Section 7 activities. The judge explained that Section 7 gives employees the rights to publicly criticize their employer especially when doing so to garner support from the public or other employees.

This decision represents the NLRB’s expansion of employee’s rights to even non-union employees. To avoid litigation, employers should check the provisions in their employment contract. These provisions should not be overly broad, and should not contain language that may explicitly or implicitly restrict an employee’s ability to discuss employment conditions, wages, or contact information. Additionally, while a disclaimer that the employer does not intend to restrict an employee’s Section 7 rights may not keep an employer completely off the hook for restricting these rights, the inclusion of such a disclaimer may provide more favorable treatment from the judge in any potential litigation.

About the Authors
Ashley French is a partner in Huddleston Bolen’s Charleston, WV office. Mark Conrad is a law clerk at Huddleston Bolen and a second year law student at the West Virginia University College of Law.

New Rulings Affect Discrimination Claims

Employers take note. The Supreme Court of the United States recently issued a pair of rulings that will ease employers’ litigation burden for discrimination claims. In Vance v. Ball State University, the Court adopted a narrow definition of supervisor for purposes of Title VII. This narrow definition limits an employer’s liability for the actions of employees that maintain some oversight duties but are not officially supervisors. In University of Texas Southwest Medical Center v. Nassar, the Court adopted a strict standard of proof for retaliation claims. These rulings make plaintiffs’ discrimination claims more difficult to prove, and will allow judges to dismiss cases in early phases of litigation. The reduction in litigation will also lead to reduced settlement value in many cases.

Under Title VII of the 1964 Civil Rights Act, an employer is automatically liable for the discriminatory acts of its supervisors, but is liable for the discriminatory acts of coworkers only if the employer is negligent in responding to the complaint. Prior to Vance, federal courts had adopted two interpretations of supervisor for Title VII liability purposes. One interpretation, followed by three federal circuit courts, defines supervisor as an employee who has authority to control the day-to-day tasks of a coworker. However, the Seventh Circuit applied another interpretation in Vance, followed by three other circuit courts, that defines supervisor as someone with the authority for workplace actions such as hiring, firing, disciplining, and promoting.

In Vance, the plaintiff was an African-American woman who worked for several years in Ball State’s dining services. She lodged several racial discrimination complaints against her employer, but the complaint at issue involved her interactions with a coworker, Saundra Davis. Vance complained that Davis generally took actions to intimidate her because of her race, and later filed suit, alleging that Davis was a supervisor and that BSU was liable for creating a hostile work environment. The Supreme Court of the United States upheld the Seventh Circuit’s definition. The Court explained that to consider an employee as a supervisor, the employee must have authority to take “tangible employment action.”

In Nassar, a doctor of Middle Eastern descent claimed discriminatory retaliation against the University of Texas Southwest Medical Center. According to Nassar, his supervisor, Dr. Beth Levine, scrutinized his work more closely than other doctors, commented that “Middle Easterners are lazy,” and engaged in other questionable activity regarding her supervision of Nassar. Agitated by the hostility, Nassar left his current job for a verbal commitment to a similar job with the private hospital that the University staffed. Nassar wrote a letter to Levine’s supervisor, Dr. Gregory Fitz, to inform him of the reasons for his departure. Fitz, however, became concerned—not about Levine’s actions—but about exonerating Levine for Nassar’s accusations. Later, Fitz protested to the Hospital that Nassar’s hiring violated their staffing contract and the Hospital withdrew its offer to Nassar.

Nassar filed complaints with the Equal Employment Opportunity Commission, and then in federal court. The trial court found for Nassar on the retaliation claim, and the Fifth Circuit affirmed that retaliation claims require the jury to find that the employee’s complaint was a motivating factor in employer’s actions. The Supreme Court, however, overturned this aspect of the ruling. The Court reasoned that Congress includes specific language in the discrimination sections of Title VII that provides for finding merely a motivating factor, but the retaliation section contains no such provision. Since Congress is not explicit on the standard, the Court continued, courts must default to the “but-for” standard that makes the employer liable for a retaliation claim only if the jury finds that the employer would not have acted the way it did had the employee not filed the complaint.

These decisions from the Supreme Court will lessen employer’s litigation burden for discrimination claims. The stricter standard of proof and the narrow definition of supervisor allow judges to deal with cases at an early stage of trial, thereby reducing time spent in litigation and the number of lawsuits filed. However, Justice Ginsburg wrote the dissent for the four justices opposed to the ruling, and called on Congress to negate this decision through a statutory change. Congress has reacted to the Court’s strict interpretation of Title VII in the past, so employers should look out for any Congressional action on the issue.

About the Authors
Ashley French is a partner in Huddleston Bolen’s Charleston, WV office. Mark Conrad is a law clerk at Huddleston Bolen and a second year law student at the West Virginia University College of Law.

Pinning it Down: Pinterest and it's Changing Terms of Service

Huddleston Bolen partner, Kevin Nelson's article "Pinning it Down: Pinterest and it's Changing Terms of Service" was featured in the Spring/Summer 2013 issue of the USLAW Magazine. The article outlined the potential liability issues employers face when they and their employees use Pinterest. Click here for the full article.