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Unpaid internships — too good to be true?

February 12, 2012

Unpaid internships are all the rage. With the slow economy and the number of paid jobs down, students flock to unpaid internships as a way to gain experience they need to make them as attractive as they can be to future employers. Companies like such internships because they provide a chance to assess talent and to gain the benefits of work without the burden of having to pay for it. Sounds like a match made in heaven? Not so.

Unpaid internships raise significant wage and hour issues for companies who offer them. While most interns are happy to get the work experience and would never complain, the potential for liability remains, as the Hearst Corporation recently learned when an unpaid intern brought a claim that her internship violated wage and hour laws. The former intern is not only claiming unpaid wages for herself, but is seeking to bring a class action on behalf of others who are similarly situated.

The Fair Labor Standards Act (FLSA) defines “employ” very broadly as including to “suffer or permit to work.” Covered and non-exempt individuals who are “suffered or permitted” to work must be compensated under the FLSA for the services they provide to an employer. Interns in the “for-profit” world will likely be viewed as employees unless they meet the tests for unpaid interns established in guidance from the United States Department of Labor (DOL). This means that interns who qualify as employees must be paid at least minimum wage and overtime compensation for hours worked over forty in a workweek.

The DOL guidance concerning unpaid internships should be consulted any time a company intends to offer an unpaid internship. Clearly, there are some circumstances under which individuals who participate in “for-profit” private sector internships or training programs may do so without compensation. The DOL guidelines provide six criteria for evaluation of unpaid internships. The more an internship program is structured around a classroom or academic experience, as opposed to the employer’s actual operations, the more likely the internship will be viewed as an extension of the individual’s educational experience. (A good example of this is where a college provides oversight and credit for the internship.) On the other hand, if interns are engaged in the daily operations of, or are performing productive work for, the employer, the internship more likely must be paid. Thus, if the employer’s goal in entering into the internship is to find a way for work to be done without having to pay for it, the internship will likely need to be paid, or the employer risks violating applicable wage and hour laws.

The lawsuit against Hearst Corporation underscores the importance of being extremely careful when crafting unpaid internships. Pay close attention to the DOL guidance. Seek advice. Things that appear to be too good to be true are often so.


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