Are All Unpaid Internships Illegal? Labor Lawyers Explain How Businesses Can Avoid Lawsuits

Scales
Fox Searchlight, Hearst Corp, Atlantic Records, Gawker Media and others have all been sued by former interns, but labor lawyers say it doesn’t have to be that way.

Scales Fox Searchlight, Hearst Corp, Atlantic Records, Gawker Media and others have all been sued by former interns, but labor lawyers say it doesn’t have to be that way.

Much of the discussion surrounding the unpaid internship debate has focused on exploitation, whether real or perceived. Fox Searchlight, Hearst Corp., Atlantic Records, Gawker Media and others have all been sued by former interns who say the companies violated the federal Fair Labor Standards Act, which details the six stringent criteria unpaid internship programs must meet.

Those criteria, which are increasingly being used against businesses who fail to pay their interns minimum wage, are listed on the U.S. Department of Labor website as follows:

1. 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.

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.

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

As is becoming more and more apparent, businesses whose unpaid internships don’t meet these FLSA criteria are opening themselves up to lawsuits. But what if the businesses aren’t the problem? What if the problem is the FLSA itself? For instance, if an employer may derive “no immediate advantage” from the activities of interns, what is the incentive to create an unpaid internship program? In fact, some labor lawyers are now questioning whether or not it’s possible to create a legal unpaid internship at all, at least as they’re defined by the FLSA.  

“I do think this debate is going down to a question of policy,” said Sharon Stiller, director of employment law at Abrams, Fensterman.

Stiller, who spoke to International Business Times by phone from her office in Rochester, said as more internship lawsuits flood the legal system, more and more businesses are going to be wary of taking interns at all. Who wants the hassle? But she said she thinks the consequences of businesses scrapping their internship programs will hurt the emerging young workforce, who lack experience in relevant industries, as well as the businesses themselves, which will have to spend more time and money training entry-level staff.

To illustrate the near impossibility of creating a legal unpaid internship program, Stiller forwarded a 2004 opinion letter sent to a marketing business from the Department of Labor’s Fair Labor Standards Team. The marketing business (whose name was removed from the letter) had written the DOL asking if its unpaid internship program met the criteria for a legal unpaid internship.

For this particular program, interns worked only about seven to 10 hours per week, and they were required to receive college credit. The program even included an outline, syllabus and assignments. However, the interns also analyzed marketing trends, collected data and compiled lists of contacts for area businesses -- all arguably educational activities, but duties from which the interns’ employer could obviously derive some benefit. And that, the DOL said in its opinion letter, is a problem.  

“What is startling to me about this letter is that the business seems to be doing all the right things to create a program that will teach students hands-on what is involved in effective marketing, as opposed to dry classroom instruction,” Stiller said. “But the Department of Labor is concerned that the program is for the benefit of the employer, not the intern.”

But if unpaid internships are almost always illegal, is paying your interns the answer? That’s been the opinion of labor lawyers like Maurice Pianko, founder of Intern Justice, who has been filing lawsuits on behalf of unpaid interns seeking to recover wages. He cautions, however, that a paid internship means a business must pay at least minimum wage, overtime, payroll taxes and maybe even unemployment benefits. In other words, all the regular conditions of an employee-employer relationship apply. That’s because internships in the for-profit sector are considered employment, unless they meet the strict criteria outlined above.

“A paid internship requires all workplace protections and regular employee benefits,” Pianko said.  

This is partially why Stiller thinks lawmakers need to revisit the FSLA, whose test for defining an employment relationship dates back to the 1947 Supreme Court case of “Walling v. Portland Terminal Co.” The case dealt with a training program for a railroad company. Stiller thinks there has to be a middle ground, by which lawmakers can create parameters that both benefit interns and give employers a reason to use them. For instance, she says, putting a time cap on internship programs could prevent long-term exploitation.

In the meantime, Stiller said she simply doesn’t advise her clients to offer unpaid internships. For companies that offer paid internships, she said businesses will still have to ensure that they are meeting FLSA guidelines, as well as additional state regulations. And the best way to do that might be the old-fashioned way -- aligning with a college or university that sees internships not as an opportunity for free labor, but as the valuable training programs they are.

“Partner with an education institution,” Stiller tells businesses. “Internship programs should be hinged in education. And they’re still better than working at McDonald’s.”

 

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