“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.
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