Should You Be Paying Your ‘Unpaid Intern’?

Kegler Brown E-mployment Alert

As companies prepare for the influx of free labor from students looking to build their resumes this summer, I thought I would touch upon the hot topic in wage and hour law: the unpaid intern.

Clients often ask if and when they can hire unpaid interns. If the company is for-profit and benefits from the intern's work, my answer is "usually never." While each internship must be analyzed individually, an internship in the for-profit private sector will most often be viewed as employment. If classified as employment as opposed to a true internship, the interns must be paid minimum wage and overtime where applicable. So just because they are in college and willing to work for free, doesn't mean it's legal.

Why should you care? Unpaid intern lawsuits are so hot right now.

Between June and August of 2013 alone, unpaid interns filed lawsuits against several heavy hitters including Condé Nast Publications, Warner Music Group, Atlantic Recording, Gawker Media, Fox Entertainment Group, NBC Universal, Viacom, Sony, Universal Music Group, Bad Boy Entertainment, and Donna Karen. But smaller companies are subject to the same laws and can also be hit with a wage and hour lawsuit.

There are, however, situations under which individuals who participate in for-profit private sector internships or training programs may do so without compensation. When determining if a position qualifies as a true internship or training program (not requiring payment of wages), courts focus on two main questions:

  1. The company must ask whether the internship is similar to an educational experience: Is the primary benefit of the internship for the intern or the company?

    The closer the internship is to an educational setting, the more it benefits the intern – and the more likely the interns may go unpaid. Generally, the more an internship program is structured around a classroom or academic experience as opposed to the company's actual operations, the more likely the internship will be viewed as an extension of the individual's educational experience.

    The more the internship provides the individual with skills that can be used in multiple employment settings, as opposed to skills particular to one company's operation, the more likely the intern would be viewed as receiving educational training.

    On the other hand, if the interns are engaged in the operations of the company or are performing productive work, the fact that they may be receiving some benefits in the form of resume builders or improved work habits will not exclude them from applicable wage and hour laws because the employer is the one benefitting from the interns' work.
  2. Does your company use the intern as a substitute for regular workers or to augment its existing workforce during specific time periods?

    If yes, the intern should be paid.

    In other words, if the company would have hired additional employees or required existing staff to work additional hours had the interns not performed the work, then the interns will likely be viewed as employees and will be entitled to compensation. In contrast, if the company is providing job shadowing opportunities that allow an intern to learn certain functions under the close supervision of regular employees and the intern performs minimum work, the activity is more akin to an educational experience.

As recent events show, the threat of an unpaid intern lawsuit is no longer a theoretical risk. This does not mean you must pay the interns, but you should reassess your program to decide if changes should be made. For example, to have a true unpaid internship, you may have to implement policies and practices geared toward training and supervising the interns. If you don’t have any procedures in place, now is the perfect time to create them.

The bottom line: Avoid the mistakes made by so many companies and evaluate what you want from an intern before hiring. Then make sure you have the appropriate procedures in place to avoid a wage and hour lawsuit.