Employers beware: No free labor

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By Dan Heilman
Dolan Media Newswires

The internship represents a peculiar type of quid pro quo in the corporate world: An employer gains help and a worker gains experience, often without any money changing hands. Until recently few gave the ethical or legal aspects of unpaid internships much thought.

But some high-profile cases have changed that. Such entertainment and media giants as Fox and Hearst Corp. have been sued by former interns saying they should have been paid. Another lawsuit, against Fox Searchlight, has been declared a class action.

How much risk exposure does your employment client have when it comes to unpaid internships? Maybe more than you think, and maybe enough for you to advise them on revising the terms of the internships they offer.

“We’re getting lots of calls about that,” said Marylee Abrams, an employment attorney in Arden Hills. “I think it’s enticing for a business to bring in someone on an intern basis. They view that person basically as a free worker.”

However, there’s no such thing as a free worker, at least not for privately held, for-profit companies. In a 2010 New York Times article, Nancy J. Leppink, acting director of the U.S. Department of Labor’s wage and hour division warned, “If you’re a for-profit employer or you want to pursue an internship with a for-profit employer, there aren’t going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law.”

“Most of the employers we represent are private and for-profit,” said Craig Trepanier, an employment attorney in Minneapolis. “The Department of Labor has taken a position where a for-profit employer can’t hire an unpaid intern. As a result, our advice is to be conservative about it — pay at least a minimum wage.”

The federal Fair Labor Standards Act, which regulates overtime pay and minimum wages, requires that any intern must be paid at least minimum wage (currently $7.25 per hour) if he or she meets department criteria. It establishes a six-part test to determine if a worker’s employment is not subject to federal wage and hour law:

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

Trepanier said it’s very difficult for most private, for-profit employers to meet all six criteria. For instance, to satisfy the first part of the test, some employers have offered school credit to unpaid interns as a benefit to the intern.

“School credit alone, however, likely will not satisfy the DOL test,” Trepanier said, “because all six factors must be considered — for example, the employer may still be receiving some benefit in utilizing the intern’s services under factor two.”

‘Serious risks’

But even for companies who flout the FLSA regulations, a lot of human factors shield them from legal exposure. The main one is that in most cases, interns don’t mind exchanging their time in exchange for such nonmonetary compensation as relevant work experience or a professional reference — that is, if they’re even aware that they’re entitled to pay.

But that doesn’t give employers license to exploit interns who are unaware of the law. Under FLSA, an unpaid internship could leave an employer open to claims for minimum wage, as well as overtime if the person worked more than 40 hours per week. Damages could also include back pay for hours worked under the federal minimum wage. FLSA also entitles plaintiffs to recover liquidated damages in equal amount — essentially double damages. It also authorizes an award of attorney fees, court costs and interest.

“Then there’s just the adverse publicity,” Trepanier said. “From my perspective, those are serious risks in hiring unpaid interns.”

Abrams, the Arden Hills attorney, thinks the recent visibility of cases involving high-profile companies will lead to growth in the rights granted interns.

“The Department of Labor is scrutinizing a lot of those workplace relationships,” she said. “Now that we’ve got summer break coming up; college kids are looking for jobs. They see an unpaid internship as an opportunity. But employers have to be careful. Or business clients are looking at ways to cut costs, but we’re advising them that (not paying interns) isn’t a good way to do that.”