Labor and Employment Newsletter — Some Employers May Not Be Able to Afford Unpaid Interns

Labor and Employment Newsletter

Some Employers May Not Be Able to Afford Unpaid Interns

By Sharon Ongerth Rossi and Christine Liyanto

The unpaid internship has increased in popularity in recent years.  For the employer, the unpaid internship is a device for keeping costs low while garnering free labor; for the individual, the unpaid internship is his or her opportunity to get a proverbial foot in the door in a down employment market.  In the past six months, however, three highly publicized class action lawsuits—against a move studio, a publishing company, and a non-profit television network—have highlighted the risks associated with unpaid internships, drawing attention to potential violations of various state and federal wage and hour laws if employees are misclassified as interns.

An intern working for an employer in the private sector must meet a set of rigorous criteria to be properly classified, otherwise, the individual’s relationship with the employer will be considered to be actual employment requiring compensation subject to applicable wage and hour laws.

In California, if a misclassified intern pursues an action against an employer for unpaid wages, the employer could be liable for all unpaid wages (based on the applicable minimum wage), including overtime premiums for daily overtime (hours worked in excess of 8 and/or 12 hours in a day) and weekly overtime (hours worked in excess of 40 in a week), plus interest and other various labor code penalties, such as penalties for late payment of wages and possibly missed meal and rest breaks.

Both the California Department of Labor Standards and Enforcement (DLSE) and the Federal Department of Labor (DOL) apply a multi-factor criteria test when determining whether or not an individual holding a position is an “intern.”  The test consists of the six criteria listed below.  A court (or government agency) will look at all of the criteria on a spectrum and will make a decision based upon the totality of the circumstances (in other words, no one factor will be dispositive).

In most cases, unless a strong showing under all of the criteria can be satisfied, an internship within the private sector will likely constitute actual employment.

Criteria for Properly Classified Interns

1. The internship, even though it involves the actual operation of the company’s business, is similar to that which would be given in a vocational school.
   
   Generally, the more an internship is structured around an academic experience, the more likely the intern will be viewed as properly classified.  Requiring a company’s interns to be enrolled in some type of program where they receive academic credit for the internship, for example, will help the company build a defense to a misclassification case.
2. The internship experience is primarily for the benefit of the intern (as opposed to the company).

   An internship should provide training specific to the industry; the more time an intern spends performing non-unique tasks such as running errands, filing or doing other clerical type tasks, the less likely an intern will be deemed to be properly classified.   The mere fact that an intern may be receiving some benefit in the form of general work experience does not sufficiently satisfy this prong of the test because the employer is receiving a mutual benefit from the intern’s work.

3. The interns do not displace regular employees, but rather work under their close observation. 

   Interns should not be used as a substitute for regular workers, nor should they be used to augment an existing workforce.  According to the DOL, if without its interns a company would need to hire additional employees or require existing staff to work additional hours, then the interns are likely misclassified.  Also, if an intern receives the same level of supervision as a regular employee, then the intern may be misclassified.  As a general rule, interns should be more closely supervised and be given more frequent direction than regular employees.

4. The company derives no immediate advantage from the interns, and in fact, on occasion the company’s operations may actually be impeded by the internship program.

   In other words, in the short run, interns should be more trouble than they are worth to the company.  An intern who “shadows” a regular employee while performing minimal work, or where the close supervision of an intern could actually slow down the completion of a task, arguably satisfies this particular criteria.

5. The interns are not necessarily entitled to a job at the conclusion of the training period.

   Internships should not be used as “trial periods” to determine whether or not an individual would be right for the job.  It should be clear at the outset that the internship is for a specific duration (e.g., for an academic quarter or semester) and that there is absolutely no expectation that the intern will be offered a position at the conclusion of the internship.

6. The company and the intern have a mutual understanding that the intern is not entitled to wages.

   At first blush, this appears to be a relatively easy test to satisfy.  However, in the vein of “no good deed goes unpunished,” where an intern is paid a salary or stipend that amounts to less than minimum wage based on the aggregate of hours worked, this particular criteria will not be satisfied because both parties will be deemed to have had the expectation that some type of wage would be paid.

   The recently filed lawsuits may be just a harbinger of what is to come in future employment litigation and may signal a potential trend for class action suits.  Employers should thoroughly evaluate and, if necessary, modify their internship-like programs to ensure compliance with federal and state labor laws.

   If you have questions about your company’s internship program or any other labor and employment matter, please contact the Rogers Joseph O’Donnell attorney with whom you regularly work, or any member of our Labor and Employment Practice Group.

Dennis C. Huie (dhuie@rjo.com)
Alexis J. Morris (amorris@rjo.com)
Gayle M. Athanacio (gathancio@rjo.com)
Sharon Ongerth Rossi (srossi@rjo.com)

Rogers Joseph O’Donnell
Robert Dollar Building, 10th Floor
311 California Street
San Francisco, CA 94104
Phone: 415.956.2828
Fax: 415.956.6457

The content of this article is intended to provide a general guide to the subject matter, and is not a substitute for legal advice in specific circumstances.