Hiring interns may be an effective strategy for employers to control labor costs while providing individuals, typically college students or recent graduates, an opportunity to gain valuable work experience. The hallmark of an internship is that both the employer and the intern realize that the benefits of the relationship outweigh the sacrifices each makes. Historically, many employer have not paid wages to interns with the general understanding that the interns are compensated with an opportunity and experience they would not have received but for the unpaid internship. However, the days of unpaid internships may be drawing to a close.
In recent years, more and more interns have filed lawsuits seeking backpay awards claiming that their employers violated federal and/or state wage and hour laws by not paying them wages. Many have been successful. This in spite of the fact that the litigious interns understood the fact that they would not be paid wages when they accepted the internships in the first place. This trend has led many employers to either start paying interns, which leads to a reduction in the total number of interns hired, or abandon internship altogether, which results in many of the would-be interns struggling to find the experience they desperately need. The only other alternative is to try to fit interns into the narrow exception the US Department of Labor and many state departments of labor have adopted regarding unpaid internships.
The Unpaid Intern Exception
The US Department of Labor operates with the presumption that interns are employees as defined by the Fair Labor Standards Act (FLSA) and thus must be paid at least minimum wage for each hour worked and overtime for all hours worked beyond 40 in a workweek. In order for an employer to be exempt from the minimum wage and overtime obligations, its interns must meet all of the following six criteria:
- 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;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- 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;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and,
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
As you can see, the threshold for the unpaid intern exemption is quite high and is a bit complicated. It is no wonder employers have become more hesitant to hire unpaid interns especially since interns and the US Department of Labor have been much more active in leveraging the narrowness of this exception to target unexpecting employers.
If you are an employer that currently hires unpaid interns or has contemplated doing so, you should consider the risks. Meeting the six-part exception test is not easy and you may be found liable even if you do your best to comply. The easiest solution to minimize the risk is to ensure interns are paid at least minimum wage and overtime. If you want to pursue the unpaid intern route, I recommend seeking the counsel of an HR consultant or employment lawyer before doing so.