Employers Beware! You May Be Violating the FLSA with Unpaid Interns

Many college and post-graduate students seek internships during their schooling to gain the experience needed to jumpstart their career.  Students and recent graduates often find that to gain the experience needed to obtain a job in their field, they need an internship.  Because many businesses can’t afford to pay an underqualified intern to make mistakes and ask questions all day, but want to give back to their field by providing students with real experience, businesses hire students as unpaid interns.  However, employers should beware, for what they may view as charity, the Department of Labor or a federal judge may view as indentured servitude – a violation of the Fair Standards Labor Act (FLSA) and the Thirteenth Amendment to the United States Constitution.  

The Fair Labor Standards Act

The FLSA is a broad piece of federal legislation that provides employees a cause of action for their employers’ violations of the minimum wage and overtime laws, among other labor violations.  The FLSA defines the term “employ” broadly, including to “suffer or permit to work.”  If an individual is covered by the FLSA or non-exempt and the individual is “suffered or permitted” to work, he must be compensated under the FLSA for the services he performed for his employer. 

If a private-sector employer hires an intern and the intern is deemed “employed” under the FLSA, the intern is subject to the minimum wage and overtime requirements of the FLSA and will have a cause of action to sue his/her employer if unpaid.  The government is, of course, excluded from these requirements and can hire unpaid interns as it pleases.

To determine whether an intern is indeed an intern instead of an employee, his internship must pass a test by meeting six criteria. “Internships” in the private sector are often deemed employment because they cannot meet the six criteria.  If so, employers must pay those interns at least the minimum wage and overtime pay (1.5x wage) for working any hours beyond forty per week.

An Internship Must Meet These Six Criteria

The Supreme Court has held that the term "suffer or permit to work" cannot be interpreted to make an intern whose work serves only his own interest an employee of another when that person provides aid or instruction.  This exception may apply to interns who receive training for their own educational benefit.  The determination of whether an internship or training program meets this exception must be determined on a case-by-case basis.  Some individuals who participate in for-profit, private sector internships or training programs may do so without compensation if their internship satisfies the following six criteria:

  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 is for the benefit of the intern;

  3. The intern does not displace regular employees and 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 by the internship;

  5. The intern is and is aware that he 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 in the internship.

If the internship program satisfies the six criteria, an employment relationship does not exist under the FLSA, and the FLSA’s minimum wage and overtime laws do not apply to the intern. 

This exclusion from the definition of employment is very narrow because the FLSA’s definition of “employ” is so broad.  Therefore, employers must be very wary of unpaid internships and make sure managers and supervisory employees are not compromising the internship’s status under these six criteria.  Here are some thoughts to consider for each of the six criteria:  

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Factor 1: Similar to an Education Environment

Generally, the more an internship is structured around an academic experience rather than the employer’s day-to-day operations, the more likely it will be viewed as a part of the individual’s educational experience.  This is more likely to occur when a college is involved in the internship, overseeing the internship program and providing class credit. 

Factor 2: For the Benefit of the Intern

If the internship teaches the individual skills for multiple employment settings, versus skills particular to the one employer’s operation, then the intern will likely be viewed as receiving training.  The intern cannot perform routine work of the business on a regular basis which does not relate to the educational purpose of the internship, such as going on coffee runs or taking out the trash.

Factor 3: Displacement and Supervision

If the employer substitutes interns for regular workers or augments its existing workforce for specific time periods, these interns should be paid at least the minimum wage and one and half wages for overtime hours.  Likewise, if the employer would have hired additional employees or required staff to work additional hours had the interns not performed the work, then the interns will be viewed as employees and entitled compensation under the FLSA. 

On the other hand, if the employer allows an intern to learn certain job functions under the close and constant supervision of regular employees through shadowing, but the intern performs no or minimal work, the internship is more likely to be viewed as educational; but, if the intern receives as much supervision as regular employees, the internship could be viewed as employment.

Factor 4: Employer Receives No Immediate Advantage

The employer hosting the internship cannot depend upon the work of the intern.  If the intern engages in the daily operations or performs productive work (i.e. filing, clerical work, custodial work, assisting customers), then although the intern may receive some benefit from newly obtained skills or improved work habits, this fact will not exclude the intern from the FLSA’s minimum wage and overtime requirements due to the employer’s direct benefits from the intern’s work.

Factor 5: Job Entitlement

It is important for employers to fix the duration of internships and establish this in writing for the intern before the internship begins.  The employer should also not use unpaid internships as a trial run or a training period for interns seeking employment at the conclusion of the internship.  If an employer hires an unpaid intern for a trial period with the intern expecting a full-time job offer at the conclusion, the intern will generally would be considered an employee under the FLSA.  Essentially, the FLSA prevents employers from not paying employees for probationary periods by calling them interns.

Factor 6: Intern Understands Internship is Unpaid

Finally, employers need to set out the intern relationship from the get go, in writing, clearly stating that internship is unpaid.  The intern cannot go into the internship expecting wages or being clueless as to whether he will receive wages.  

Conclusion

If you own a business and you plan on bringing on interns, make sure you follow the criteria under the FLSA.  Don’t expect free labor out of indentured servants and make sure the interns are aware of the limitations of the internship from the outset.  Not only should you, as the employer, know these rules, management, and quite frankly all regular employees, need to know these rules so they don’t incur liability for your business.  Contact us today if you are considering an internship program and are concerned about the FLSA.