Arrangements between “for profit” companies and unpaid interns can lead to rewarding experiences for both parties. Interns benefit by receiving valuable real-world experience, mentorship, and connections. Companies get the opportunity to give back to students and help strengthen their industry. However, unpaid internships are not without issues and the legal landscape is shifting to require strict compliance with federal and state employment laws.
In recent years, the Department of Labor (“DOL”) has taken on the issue of unpaid internships and whether interns are in fact employees, and thus entitled to at least minimum wage. Under the Fair Labor Standards Act (“FLSA”), an “employee” is required to receive at least the federal minimum wage ($7.25 per hour) and time-and-a-half for all hours worked over 40 hours per week. However, state laws may require a higher minimum wage to be paid. For example, Oregon’s minimum wage is $9.75 an hour. Additionally, interns who are actually employees can make claims for worker compensation and benefit from other legal protections afforded to employees.
According to the DOL, when all of the following criteria apply, trainees or students are not employees within the meaning of wage and hour laws:
- 1. The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school;
- 2. The training is for the benefit of the trainees or students;
- 3. The trainees or students do not displace regular employees, but work under their close supervision;
- 4. The employer that provides the training receives no immediate advantage from the activities of the trainees or students; and on occasion his operations may actually be impeded;
- 5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and
- 6. The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.
If all factors are met, an employment relationship does not exist under the FLSA, and minimum wage and overtime laws will not apply to the intern. Although these factors are only dispositive for wage and hour issues, it may also serve as persuasive evidence that the interns cannot benefit from worker compensation, nor invoke other employment related claims (discrimination, retaliation, etc…). However, unpaid interns may be protected through state laws. In Oregon, Governor Kitzhaber signed a Workplace Protection law in 2013 that extended employment discrimination protection to interns, thereby giving interns legal recourse under Oregon’s employment discrimination laws.
Companies that have internship programs that do not meet the criteria above risk exposure to unpaid wage claims and other legal action brought by “interns.” Successful wage claims not only subject employers to payment of at least minimum wage and overtime, but also penalties and attorney’s fees. Additionally, employees may bring discrimination, retaliation, and other related employment lawsuits against the company.
When employers design an internship program, it should focus on what the intern can learn, and how the program can benefit the intern. Employers should have a written internship policy, that they follow, and that addresses the six factors above. Employers should emphasize to interns that they are not employees of the company, and it would be prudent for employers to have interns sign an agreement acknowledging satisfaction of each factor of the DOL test.
Lastly, employers may want to ask the DOL for guidance on their internship program by asking for an opinion letter. DOL opinion letters are not considered persuasive authority by courts, but they are informative in determining the question of whether the employer willfully violated wage hour law.
If you are considering utilizing unpaid interns at your company, you may want to seek assistance from legal counsel to review your intern agreement and internship program.
About the Author: Peter Tran
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Peter works to creatively find solutions to legal issues so clients can focus on maximizing their business opportunities. He is experienced with helping clients navigate their various business, employment, and tax challenges so that his clients can focus on their true passions.