Despite High Student Interest, Employers Remain Limited In Use of Unpaid Interns and Volunteers

In today’s economy, an increased number of students are having difficulty finding summer jobs. As a result, many students are now offering their services to companies on an unpaid basis as either summer student interns or volunteers. This topic has piqued the interest of a number of national media outlets, the United States Department of Labor (DOL), as well as state labor departments. In April, Seyfarth Shaw provided legal background to the conversation in news pieces appearing in the New York Times as well as on Southern California’s National Public Radio station.

While students may be willing to accept unpaid internships or volunteer work in exchange for on-the-job experience and a potential connection to a future job, applicable laws narrowly regulate the circumstances under which for-profit employers can accept these offers without paying at least minimum wage for the worker’s services. With rare exceptions for work performed pursuant to an educational program, for-profit companies will be obligated to pay interns for any
work performed.

In Most Cases, Interns Must Be Paid As Employees

Federal and most state laws require employers to pay student interns. Generally, under the Fair Labor Standards Act (FLSA), any person who is “permitted” to work for the advantage of a for-profit employer is considered an employee and must be paid as an employee.

A person who works for nothing, even if the choice is entirely voluntary, is an employee. The classification of a person as an “intern,” “trainee,” or “volunteer” cannot be used to avoid employee wage and hour requirements.

There Are Narrow Exceptions

The DOL has set out some guidance on this issue in its regulations and Wage and Hour opinion letters interpreting the FLSA. See Administrative letter ruling dated February 22, 1974 (WH-254, BNA WHM 99:1152). According to the DOL, a person may be considered an unpaid intern or trainee and not an employee if all of the following six criteria are met:

1. The training must be comparable to that given at a vocational school. (For example, the intern could pay to receive the training somewhere else.)
2. The training must benefit the student.
3. The student would not replace a regular employee. (The intern cannot fill in for someone on a short-term disability or out for the day.)
4. The employer does not immediately benefit from the student’s activities. (This requirement is especially difficult for employers. It means the intern cannot deliver mail, sort files, conduct market research, write reports, schedule interviews, or perform any other work that assists the employer in running its business.)
5. There is no promise of a job following the training.
6. Both the employer and the student understand that no wages will be given for the training period.

As a practical matter, the vast majority of interns would fail to meet at least one of the six requirements if they work for any for-profit employer.

Exceptions for Volunteers for Non-Profit Organizations

Although there are also exceptions for individuals who work as volunteers for non-profit organizations, these exceptions do not apply to any for-profit employers. An individual is considered a volunteer under the FLSA if the individual:

1. performs hours of service for a public agency for civic, charitable, or humanitarian reasons, without promise, expectation, or receipt of compensation for services rendered (although a volunteer can be paid expenses, reasonable benefits, or a nominal fee to perform such services);
2. offers services freely without pressure or coercion; and
3. is not otherwise employed by the same public agency to perform the same type of services as those for which the individual proposes to volunteer.

What Are The Risks?

The number of unpaid internships has increased in recent years, leading federal and state regulators to be concerned that employers are increasingly using internships to violate wage and hour laws.

Seyfarth Shaw Partner Camille Olson was quoted on April 2, 2010, in The New York Times article, “Growth of Unpaid Internships May Be Illegal, Officials Say.” The article pointed out that several states, such as Oregon, California, and New York have begun investigating and fining employers for violations, and the DOL has been expanding efforts to educate companies, colleges and students on the law regarding internships and going after firms that fail to pay interns properly.

In this environment of increased regulation, employers may be more likely to come under scrutiny for providing unpaid internships. Employers who are in violation may be subject to penalties from federal and state administrative agencies as well as lawsuits brought by individuals who worked as interns without pay. As with most wage-related claims, cases involving failure to pay interns may be filed as potential class actions.

Employers should also be mindful that interns who should be classified as employees are subject to the same protections that apply to employees in general. These protections include employment discrimination laws and workers’ compensation benefits.