To Pay Or Not To Pay – The Intern Question

fashion, apparel, clothing
Did you hear the one about the man and woman who walk into a bar and say they interned for a luxury fashion company, a magazine conglomerate, a movie studio, a modeling agency, a jewelry designer or the Los Angeles Clippers and say they should have been paid for it?

It’s not a joke. The legal assault on the unpaid internship continues to pose serious issues for unwary employers. More and more unpaid interns (typically, but not always, students or recent graduates) and their attorneys are rejecting the age-old rite of passage/symbiotic relationship that requires them to work long hours and perform varied tasks without pay in exchange for the opportunity to learn the business, make meaningful contacts, pad a short resume and demonstrate the moxie to make big money from future paid employment. Interns and former interns who never before (outwardly) complained about their arrangements are finding clear support from federal and state wage and hour laws requiring payment of minimum wage and applicable overtime premium pay for all the hours they work—just like regular employees—and are filing and participating in lawsuits to get what they believe they are owed. The public interest website ProPublica compiled and updates a chart tracking filing and status of interns’ lawsuits (http://goo.gl/jBYR9U).

I Don’t Want to Pay My Interns…

Okay, and you don’t have to—if your unpaid internship program satisfies all six of the following factors:

  • the internship, even though it may include the 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 and works under close supervision of existing staff;
  • the employer that provides the training derives no immediate advantage from the activities of the intern—and indeed, 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 in advance that the intern will not be entitled to wages for the time spent during the internship.

If that does not sound like the program in place for your summer (or other) unpaid interns, you should carefully re-evaluate whether you are in compliance with the federal Fair Labor Standards Act and applicable state law. The test creates a very high threshold, but not an impossible one—for example, it may be satisfied where, among other things, an intern receives educational credit for an internship program that extends a classroom educational experience for her or his benefit to provide experience and training in a company setting. However, employers most often fail the test where an intern does work generally performed by paid employees, is left to work independently or does productive work for the company’s benefit (even if it also benefits the intern). In all of those cases, the intern likely will be entitled to payment for his or her services.

I’m Not Going to Pay My Interns…

Okay, but be aware of the potential consequences for misclassifying someone as an unpaid intern, which include all the back wages owed (including overtime for hours worked in excess of forty in a workweek) for three years (under federal law) or more (under some state laws), penalties of 100% or more of the unpaid wages and the obligation of paying not only your own legal fees, but those of the intern who sued you. Additionally, understand that many of these cases are brought as class or collective actions on behalf of other similarly situated interns. When you add to the mix the fact that companies rarely keep accurate working time records for those interns they elect not to pay, it all makes for a potentially very expensive proposition—particularly when weighed against the option of simply paying minimum wages in return for work performed. Given the wealth of resources and advocates for unpaid interns, the time has come for employers to toss out the “that’s the way it has always been around here” mentality and carefully re-evaluate their unpaid internship programs.

Credit:  Marc B. Zimmerman

Marc is a partner in Phillips Nizer’s Labor & Employment Law Practice and Litigation Department.