Be cautious when you hire unpaid interns for summer
The mountain is closed, the mud is receding and all we can do now is wait for the beauty of a high country summer. Today’s article is about that perennial summertime worker, the unpaid intern. This practice, common to all professions, has recently become a target for the Department of Labor’s Wage and Hour Division. Often, unpaid interns are put into occupational settings where they have the chance to work in the field and potentially gain the “insider” credentials that often determine who gets hired. For businesses with a tight budget, unpaid internships provide an efficient way to identify potential “ability” without incurring the expenses associated with adding additional paid employees.
In a recent New York Times article, the acting director of the Department of Labor’s wage and hour division warned employers that, “If you’re a for-profit employer or you want to pursue an internship with a for-profit employer, there aren’t going to be many circumstances where you can have an internship and not have it be paid and still be in compliance with the law.” This is more than just lip service, as the Department of Labor has been hiring hundreds of enforcement officers to target employers violating wage and hour laws.
The Fair Labor Standards Act defines an “employee” as a person “employed by an employer” and defines “employ” as “to suffer or permit to work.” Although these definitions suggest a broad, encompassing statutory reach, they are not without limits. For example, the United States Supreme Court held that an individual who “without promise or expectation of compensation, but solely for his personal purpose or pleasure, worked in activities carried on by other persons either for their pleasure or profit” is not an employee for purposes of the FLSA. The decision involved a training program sponsored by a railroad for prospective yard brakemen. For the trainees, the program provided a way to learn the responsibilities of railroad yard brakeman through working under the supervision of current members of a yard crew. This program was conducted with an understanding that the trainees would be put on a list of potential employees who would be called when their services were needed.
The Supreme Court agreed that the unpaid training program did not violate the FLSA because the trainee was not an “employee” of the railroad. Regarding the meaning of “employ” and “employee,” the court observed, “broad as [those terms] are, they cannot be interpreted so as to make a person whose work serves only his own interest an employee of another who gives him aid and instruction.”
Outside of the courts, the U.S. Department of Labor’s currently employs a “six-factor test” for analyzing whether interns must be paid the minimum wage and overtime under the FLSA for services provided. The Labor Department reviews the following six factors when reviewing whether or not an unpaid intern is an employee for the purposes of federal law:
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• 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; and
• The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
The Labor Department advises: “If all of the factors listed above are met, an employment relationship does not exist under the FLSA and the act’s minimum wage and overtime provisions do not apply to the intern.”
If an intern is subject to the provisions of the FLSA, then the employee would be entitled to recover at least $7.25 per hour (depending on the circumstances the rate could be higher than minimum wage), plus liquidated damages and attorneys fees. Additionally, the employer could be subject to a DOL investigation and incur costs and fines resulting from the investigation. With that in mind, be careful when creating unpaid positions at the workplace. Under the circumstances, an ounce of prevention could be priceless.
Michael Brownlee is a partner with Thompson, Brownlee & Voboril, LLC, a local civil litigation firm. For more information contact Brownlee at 970-455-4226 or michael@thompsonbrownlee.com or visit http://www.thompsonbrownlee.com.