From the Blog

May 15, 2014

Legal Issues Surrounding Unpaid Internships

Written by: R. David Evans

If you’ve seen the recent flick “The Internship” then you have a taste of the highly competitive, post-college, job market facing around 17% of college graduates who are considered “underemployed”. As the summer approaches, corporations will likely find their in-boxes flooded with resumes seeking internships. Some students may even wax poetic in their cover letter soliciting an “apprenticeship,” and vowing to be the next Ben Franklin. Undoubtedly, the task of nurturing the next generation is the sine qua non of human progress, but recent lawsuits suggest companies should take a cautious approach.

Over the past two years, employers have been the target of various lawsuits by unpaid interns claiming that the intern should have been compensated as an employee, receiving at least minimum wage and overtime when applicable. Lawsuits by unpaid interns have become so popular some law firms educate the public about the law through websites such as www.unpaidinternslawsuit.com. Despite the recent uptick in legal challenges, companies should not abandon the admirable task of informing our nation’s youth, but they should do so by carefully outlining the educational goals of the internship.

Across the country, courts apply various tests to determine whether an intern qualifies as an employee subject to minimum wage and overtime requirements. Most conservatively, the U.S. Department of Labor (DOL) issued a six-factor “totality of the circumstances” test endorsed by other courts. (View Here) According to the U.S. DOL, an internship is not considered employment if the following requirements are satisfied:

  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.
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

In a recent Eleventh Circuit case, student interns enrolled in MedVance Institute’s Medical Billing and Coding Specialist program filed a lawsuit claiming they were entitled to pay during their course required externship. See Kaplan v. Code Blue Billing & Coding, Inc., 504 Fed. Appx. 831 (11th Cir. 2013). The Eleventh Circuit held that the MedVance interns were not employees, as they did not displace regular employees, they performed work towards a formal degree program, and the defendant supervised and trained the externs in a manner which required it to take time away from the business. Most importantly, the Eleventh Circuit closely followed the U.S. DOL six-factor test in analyzing whether the interns were employees, and determined that indeed it is possible to satisfy the test.

In structuring an unpaid internship, companies should consider specifically documenting the educational goals of the student’s internship and ensuring that the intern has ample supervision during the internship. For example, the employer might consider drafting a syllabus outlining the learning objectives and relevant projects. Additionally, the company may consider developing an internship “program manual” containing educational information about the company and industry in general. Further, the employer and the intern should sign a written disclaimer, prior to the commencement of the internship, explaining that (1) the intern is not entitled to a job at the conclusion of the internship, and (2) the intern is not entitled to compensation during the internship. Although the signed document is not determinative, it is another step in the right direction of emphasizing the educational experience of the internship.

An intern should be assigned specific supervision, and the intern’s supervisor should assign meaningful tasks, not just busy work, to ensure the intern is the primary beneficiary of the relationship. Employers should steer clear of merely assigning tasks such as making copies, sorting mail, and filing documents. Oftentimes, it is beneficial to require multiple supervisors to assign projects to one particular intern in order to enhance the intern’s overall experience. Smaller projects with shorter timelines have the benefit of allowing companies to measure the intern’s capability, and allow interns to work on different types of matters within the organization. It is also advisable to have a specific timeline for the internship. Lastly, orientation programs are helpful in outlining the goals of the internship and setting the overall educational tone for the internship.

It is important to note that volunteers for non-profit organizations are generally treated differently under the Fair Labor Standards Act (FLSA), and as such may volunteer without pay. According to the Department of Labor, “individuals who volunteer or donate their services, usually on a part-time basis, for public service, religious or humanitarian objectives, not as employees and without contemplation of pay, are not considered employees of the religious, charitable or similar non-profit organizations that receive their service.” By contrast, under the FLSA, employees may not volunteer services to for-profit private sector employers.

Despite the increased legal scrutiny surrounding unpaid internships, companies should resist abandoning internship programs altogether. With careful planning and straightforward compliance measures, companies can better the experience for both the intern and company.