May 26, 2010

Summertime Blues: When Unpaid Internships Turn Into Wage Claims

Pop Quiz! If you are a “for-profit” employer with unpaid employees called “Summer Interns,” you better make sure the internship passes muster with the Department of Labor lest you be the unwary object of claims for unpaid wages and overtime. Get your No. 2 pencils out for this internship pop quiz:

Are You Abiding by Federal Labor Laws on Unpaid Internships?

True or False? The internship is:

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1. Educational? 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. For the intern? The internship experience is for the benefit of the intern;

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

4. No immediate gain? 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. Expectation of a job? The intern is not necessarily entitled to a job at the conclusion of the internship; and

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

If you answered “false” to any of the above, you may be flirting with what the Federal Labor Standards Act terms an “employment relationship” and, therefore, subject to abiding by federal (and state) minimum wage and overtime laws. According to the Department of Labor, the foregoing six criteria must be applied to determine whether an unpaid internship crosses the line between educational experience (i.e. not subject to minimum wage or overtime laws) and free labor.

Take, for example, two “interns” working at a solar panel company in Oregon. The state labor department investigation found that these two employees were hired to essentially displace other workers and they were not being given educational supervision. This gaffe by the solar power company cost them over $3,000 in backpay for unpaid wages. Multiplied over the estimated 2.5 million unpaid internships that will happen this year and it adds up to big bucks.

This activity is not just confined to the state level. The Department of Labor has taken an aggressive stance on ferreting out improper unpaid internships and enforcing federal labor laws on unpaid internships. Toward this end, they have added 250 investigators to their ranks to investigate wage and hour issues such as improper classification of employees as unpaid interns.

So employers beware. Consider this pop quiz a practice test so you can bone up on the unpaid internships in your midst. If and when the real-test comes around, your business will be ready.

Regards,

Merisa Heu-Weller
Davis Wright Tremaine LLP

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