Work for Free and Maybe Meet a Celebrity? Probably Not a Lawful Internship!

Unfortunately, it may be too late for some employers that have already begun their summer internship programs, but for-profit, private sector employers should be aware that they face a steep barrier when trying to establish lawful, unpaid internships. Although not-for-profit organizations have relaxed requirements when accepting the unpaid services of volunteers and interns, it is a very different story for private sector companies. The most recent decision on this topic, Glatt v. Fox Searchlight Pictures, Inc. (S.D.N.Y. June 11, 2013), definitively ruled in favor of the unpaid interns and indicated that six key criteria should be applied when determining whether an internship can be unpaid.

In April of 2010, the U.S. Department of Labor (DOL) issued Fact Sheet #71 entitled “Internship Programs Under the Fair Labor Standards Act.” Although various state laws impose even stricter requirements on employers, these minimum federal guidelines apply in every state. Unless all six of these factors are present, an employment relationship exists under the Fair Labor Standards Act (FLSA) between the worker and the employer—meaning also that the Act’s minimum wage and overtime provisions would apply to the “intern.”

While some courts have previously applied a more flexible “primary beneficiary” test (in which the issue of whether the intern or the employer obtains most of the benefits of the internship is dispositive), the court in Glatt believed that such a test is too “subjective and unpredictable.” Moreover, an employer could not know whether the internship meets the test until after the program is completed. The six factors—each of which must be present for the worker to be considered an unpaid intern—outlined by the DOL and used in Glatt are:

• 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.
• The internship experience is for the benefit of the intern.
• The intern does not displace regular employees, but works under close supervision of existing staff.
• 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.
• The intern is not necessarily entitled to a job at the conclusion of the internship.
• The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Neither the DOL nor the court in the Glatt decision allowed these factors to be weighed or considered “on balance.” It is an all-or-nothing proposition, and every one of the six factors must be demonstrated to escape application of the FLSA.

Although the internship must be similar to training provided in an educational setting pursuant to the first factor, it is important to understand that “college credit” is not one of the factors. Accordingly, the Glatt decision bluntly dispelled the idea that using the internship to obtain college credit will help save an otherwise unlawful internship program by stating:

Receipt of academic credit is of little moment. A university’s decision to grant academic credit is not a determination that an unpaid internship complies with the [law]. Universities may add additional requirements or coursework for students receiving internship credit, but the focus of the [law] is on the requirements and training provided by the alleged employer.

Importantly, the last factor does not mean that the intern can merely agree to, or waive, the pay to which he or she might be entitled. The long-established rule under the FLSA and related state laws is that an employee cannot voluntarily waive minimum wage and overtime requirements. Yes, the intern needs to understand and know that he or she is not being paid, but the job still has to be a lawful unpaid internship in the first place.

So, companies that want to offer attractive opportunities to students (or unemployed graduates) and to provide those individuals with experience and “something to add to their resume” are forewarned: you may have to pay at least the minimum wage as well as any overtime pay to those interns.

An intern would probably jump at the chance—with or without any compensation—to fetch coffee, answer phones, or make copies on a Hollywood movie set, at a New York publishing firm, or at any company with exposure to successful professionals who may later serve as good job references. After all, who wouldn’t want the opportunity to perhaps bump into Natalie Portman or Joseph Gordon-Levitt? Nonetheless, employers need to carefully analyze their unpaid internships to make sure that their programs comply with the law. Before it is too late, take this opportunity to audit your company’s internships to ensure that unpaid interns have a meaningful learning experience and that all six of the DOL’s factors are being met throughout the entire summer.