Costly Unpaid Internships

As originally published by SHRM’s “We Know Next,” found here.

An important customer, client, colleague or business partner asks an executive if her son can intern with your company for the summer.  Don’t worry about the money, she says.  My son is only looking for the experience.

As we approach the summer, expect more of these requests.  I personally have received quite a few already!

Sounds like a classic “win-win.”  The intern learns something and you strengthen an important relationship at no cost. So, the executive says “of course.”  Not so fast, please!

There have been several recent high-profile cases in which interns have alleged that they were really employees and should have been paid. While mere allegations do not mean actual liability, the fact is that the Department of Labor and the plaintiffs’ bar are focusing very closely on this issue.

In September 2011, a case was filed against Fox Searchlight Pictures, Inc. by two interns who had worked on the production of “Black Swan.”  They claim that they were misclassified as unpaid interns and that they should have been paid.

In February of 2012, an unpaid intern who worked for Harper’s Bazaar sued Hearst Corporation, the publisher of the magazine, claiming that her unpaid internship did not meet the internship requirements, and she should have been paid.

And, just last month, a class action suit was filed against Charlie Rose and the production company Charlie Rose Inc., alleging that unpaid interns who worked for the Charlie Rose Show should have been compensated saying they were really employees, not interns, under the federal Fair Labor Standards Act (FLSA).

Under FLSA, six requirements must be met for an individual to qualify as an intern. Take the time to read the regulations now or you may find yourself reading them later — responding to a DOL audit or answering a complaint.

The six requirements are:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training that would be given in an educational environment;

2. The internship experience is for the benefit of the intern;

3. The intern does not displace regular employees, but works under close supervision of existing staff;

4. 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;

5. The intern is not necessarily entitled to a job at the conclusion of the internship; and

6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Of the six factors listed, the fourth is typically the hardest to meet. It requires that the employer not receive any real benefit from the intern’s “work,” and that, at times, the intern’s presence actually impedes operations.  Ouch.

So, talk with your executives.  Let them know that before they say yes to an offer that sounds too good to be true, they should check with you — because it may be too good to be true. You don’t want your unpaid internship to make a plaintiff’s lawyer rich at your expense.

The author, a partner with Duane Morris in Philadelphia and managing principal of the Duane Morris Institute, focuses on counseling, training and strategic planning to minimize litigation and unionization.