Is Your Unpaid Internship Program Legal?

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By Evan White
| Employment Our Attorney Network

This post is part of Priori’s new blog series “From Our Network,” where we feature lawyers in our network discussing important issues small businesses face. In today's post, employment lawyer Evan White helps small businesses understand how they can hire unpaid interns without running afoul of the law.

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When most people think of an “unpaid intern,” they think of an exhausted, overworked, eager young person who gets coffee, orders lunch, and carries stacks of paper everywhere, all in exchange for experience. However, recent legal developments stand to dramatically change the unpaid intern experience.

While the flurry of legal activity surrounding unpaid internships may be relatively new, the underlying legal issue involved – worker misclassification – is anything but.

Whether a worker is an “employee” is a legal question. Misclassification occurs when an employer (intentionally or not) hires workers as “freelancers,” “consultants,” “interns,” or “independent contractors” but as a legal matter, those workers are actually “employees.” Misclassification can result in substantial liability for, among other things, unpaid taxes, unpaid wages, failure to maintain adequate workers’ compensation coverage, and unemployment insurance contributions.

The expense and risk associated with defending misclassification claims has led several companies to consider ending their internship programs altogether. However, this is an extreme reaction. With proper planning, it is possible to offer a legally compliant unpaid internship program.

To avoid violating federal wage laws, an unpaid internship program must satisfy a six-factor test. To avoid violating New York wage laws, an unpaid internship program must satisfy the federal six-factor test plus an additional five factors. I will address the six-factor federal test in this post and then the five-factor New York State test at a later date.

U.S. Department of Labor’s Six-Factor Test

  1. The unpaid internship program must provide training similar to that which would be provided in an educational environment. This means that the intern should not merely show-up and work, but should also receive significant instruction, education, and training.
  2. The internship experience must be for the benefit of the intern. The benefits of the internship must not be incidental to working in the office like any other employee. Rather, the primary purpose of the internship program should be to benefit the intern.
  3. Perhaps most importantly, the intern must not displace regular employees and must work under close supervision of existing staff. Therefore, an intern must not perform routine tasks that would otherwise be performed by regular employees, including office chores like getting coffee, making photocopies, and running errands.
  4. The employer must derive no immediate advantage from the interns’ work. In other words, the employer must spend time and effort on programs and policies for the interns’ benefit in a way that does not directly benefit the company.
  5. Interns must have no expectation of employment as a result of their participation in an internship program. This requirement serves to ensure that interns have reasonable expectations about their job prospects post-internship and that the internship is not merely an unpaid “trial period.” To fulfill this, interns must explicitly understand that they are not guaranteed a position with the company.
  6. Before the internship begins, interns must sign a document indicating that they have no expectation of wages as compensation for their participation in the unpaid internship program.

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Recommended Best Practices

  • Work with educational institutions to provide academic credit for the internship. While the opportunity to earn class credit is not required, it is very helpful.
  • Include regular classroom sessions and job shadowing, especially observing the application of classroom instruction to workplace activities.
  • Interns should develop transferrable skills that make them marketable to other future employers. These skills include time management, analysis, teamwork, professional organization, communication and other industry-specific skills.
  • Provide opportunities to take educational trips and participate in workshops and educational events.
  • Interns should receive more supervision than employees.
  • Pair interns with mentors who can supervise and teach them, and use company resources to teach, mentor and assist interns.
  • Provide interns with secondary projects with educational components that are not typically done by paid staff, such as researching and writing blog posts or articles in the company’s field of choice.
  • Do not hire unpaid interns to avoid hiring additional paid employees, or to avoid increasing the hours of existing employees.
  • Ensure all interns sign an agreement stating there is no expectation or guarantee of employment as a result of their participation.
  • Limit the length of internships. The longer an internship lasts, the more likely it will be considered an employment relationship.

In sum, to comply with the U.S. Department of Labor’s six-factor test, internships must be educational and employers must make sure that an unpaid internship program provides a sufficient benefit to the interns to justify their lack of wages. Finally, employers must spend substantial time and resources ensuring that interns receive useful and relevant experience and training.

As noted above, under New York law unpaid internships must satisfy an additional five-factor test. These five factors will be explained in part 2.

Do you have any burning questions about working with interns or employment law generally? If so, submit them in the comments section below, twitter, facebook or to hello@priorilegal.com before Wednesday 11/13 at 11:59pm and Evan will pick 1-2 to answer. We will post his answers to the blog later this week.

 

Photo Credit:

Matthew Wiebe via Unsplash

Startup Stock Photos 

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