Articles

Employment Law Alert – What Every Employer Should Know About Utilizing Interns

April 27, 2010

The United States Department of Labor has recently confirmed its intention to “crack down” on for-profit employers who utilize unpaid interns.  Internships in the for-profit sector will most often be viewed as an employment arrangement which must comply with minimum wage and overtime laws, unless the facts meet the federal test for unpaid interns.  California employers should be aware that federal regulations are more restrictive.

Federal Regulations on Internships

Federal regulations only allow individuals to engage in internships for private sector for-profit organizations without receiving compensation if the following criteria are met:

First, both employer and the intern understand that the intern is not entitled to wages for the time spent in the internship program.

Second, the internship is similar to training which would be given in an educational environment, even though it includes actual operation of the employer’s facilities.  Generally, the more an internship is designed to emulate a classroom or academic experience rather than the actual operations of the employer, the more likely it is that the program will be viewed as an extension of the educational experience, and thus a true internship.  This often involves the individual’s college or university overseeing the internship program and offering academic credit for it.  Also, programs which provide the individuals with job skills and education that span multiple professions or job environments, rather than the particular industry or workplace of the employer, are more likely to be viewed as legitimate internships.

Third, the internship experience is for the benefit of the intern and fourth, the employer derives no immediate advantage and may actually have its operations impeded.  In a true internship, the intern does not perform the business’ routine work on a regular basis, and the business does not depend upon the intern’s work.  Simply because an intern receives a new skill or improves upon his or her work habits as a result of performing productive work (such as clerical duties) does not exclude him or her from minimum wage and overtime requirements, because the employer benefits from the intern’s work.

Fifth, the intern does not displace regular employees, but works under close supervision of existing staff.  An employer who substitutes interns for regular employees or uses interns to supplement its existing workforce during specific time periods is responsible for meeting minimum wage and overtime requirements.  If, in the absence of the interns, the employer would have had to hire additional workers or required existing employees to work additional hours to perform the work, then the interns will be viewed as employees and must be paid at least minimum wage and overtime where applicable.  On the other hand, if the employer has interns “shadow” existing employees to learn job skills, in an environment of constant supervision by regular employees, where the intern performs few or no actual duties, then the situation looks more like a bona fide internship or training program.  Where the intern receives the same amount and intensity of supervision as the business’ regular employees, the Department of Labor will likely find an employment relationship rather than a true internship.

Finally, the intern is not necessarily entitled to a job at the conclusion of the internship.  The internship should be for a fixed period of time which is established and communicated prior to beginning the program.  Employers cannot legitimately use an “unpaid internship” in lieu of an introductory or probationary period, or as a “trial run” for individuals who want to be part of the employer’s regular work force.  If an intern may expect that he or she will be hired as a regular employee at the conclusion of the internship, then an employment relationship is created for purposes of the federal law.

If all of the above factors are present, then an employment relationship does not exist under the Fair Labor Standards Act (“FLSA”), and the for-profit organization does not have to pay the intern minimum wage or overtime pay.  As you can see, the situations in which a true internship exist under the federal regulations are very limited.

California’s Position on Internships

On April 7, 2010, around the same time that the federal Department of Labor confirmed its plan to scrutinize internships, the California Labor Commissioner issued Opinion Letter No. 2010.04.07.  In that opinion letter, the Labor Commissioner affirmed the six criteria set forth by the federal regulations.  However, where the federal DOL requires that all six criteria be satisfied before an employer is excused from paying minimum wage for an intern, the Labor Commissioner’s lead counsel applied a slightly less strict standard by stating that the six criteria must be applied in view of “all the circumstances” surrounding the interns’ activities.  When determining whether a true internship or an employment relationship exists, a California employer must assess the “totality of the circumstances.” 

Conclusion

The determination of whether a program is truly an internship or is actually an employment relationship is a very fact-specific question unique to each situation, and must be analyzed on a case-by-case basis.  Employers should seek advice from their legal counsel prior to implementing an internship program to be sure they are not running afoul of federal or state wage and hour laws, because the failure to pay minimum wage or overtime pay can result in significant financial liability for companies of all sizes.

If you have any questions regarding these changes or how they affect your business, please call Kara Arguello or any member of Berliner Cohen’s Employment Law Group.

Roberta S. Hayashi
roberta.hayashi@berliner.com

Christine Long
christine.long@berliner.com

Kara L. Arguello
kara.arguello@berliner.com

 

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