Unpaid Internships Can Be Very Costly

Now that college students have returned to campus, effectively ending the summer season of cheap and relatively well-educated available labor, employers should examine their unpaid internship programs to make sure they are compliant with federal wage and hour law.  This is especially important because the Department of Labor has begun a campaign against these unpaid programs, and the interns themselves are filing lawsuits for back and overtime wages that were never within the contemplation of the parties when the working arrangement began.

Unpaid internships can be a valuable mechanism for an employer to train and recruit potential employees, while at the same time providing some much needed job assistance and experience to experienced workers.  Although the Fair Labor Standards Act specifically authorizes the use of unpaid internships, these positions are subject to some fairly strict requirements.  In April, 2010, the DOL published a fact sheet that detailed a list of requirements for unpaid internships that met the FLSA requirements.  Basically, these internships must:

1. Be similar to training that would be given in an educational environment.
2. Primarily be for the benefit of the intern.
3. Not displace regular employees and work under the close supervision of existing staff.
4. Not provide an immediate advantage to the employer from the activities of the intern; in fact, on occasion, the employer’s operation could be impeded by the intern’s activities.
5. Not be contingent on a job offer at the end of the internship.
6. Understand, along with the employer, that the intern is not entitled to wages.

Note that some of these requirements are not obvious-I've often said that if I have to pick a statute that my clients are most likely violating unwittingly, it's the FLSA.  Given the DOL’s push and scrutiny of these relationships, as well as the increased litigation pace around them, employers should scrub their internship offerings to make sure they are in fact being carried out with these requirements in place.

UPDATE:  Here's an interesting aspect of the internship issue-a federal court in New York has denied a sexual harassment claim by an unpaid intern on the grounds that because she was an intern and not a paid employee, law prohibiting sexual harassment did not apply.  Note that this position is consistent with the EEOC's interpretation of federal employment law, as well.