by Amy Beth Dambeck, Esq.

Given the tough job market and with summer approaching, many employers can expect college students, recent graduates, and even unemployed workers to seek out internships with their organizations. Indeed, unpaid internships became much more prevalent in recent years, as companies sought to control salary and benefit costs by utilizing unpaid workers looking to build their resumes. However, with the increased use of unpaid internships came increased scrutiny –– and the filing of various lawsuits alleging violation of wage and hour laws. In response, many employers are eliminating “unpaid” internship programs altogether, while others are seeking to re-evaluate their existing programs to ensure their legal compliance. Such lawsuits and applicable U.S. Department of Labor (“DOL”) regulations make clear that employers who wish to employ unpaid interns must do so carefully to avoid exposure to significant legal and financial liability.

So what’s all the fuss about? Unpaid interns, regularly used be many companies, may actually be a huge legal liability. Two high-profile lawsuits recently brought by disgruntled unpaid interns highlight the fact that many companies fail to follow the specific federal guidelines that must be met in order to have unpaid interns. In order for the unpaid internships to be strictly legal, for-profit companies have to meet a six-part list of criteria that has been established by the DOL. This established criteria or “test” aims to prevent employers from skirting the long-established rule that only work done for “training purposes” can go unpaid. Damages for violating these established requirements may include back pay, unpaid taxes not withheld, social security, unemployment benefits, interest, attorneys’ fees, and liquidated damages (double the unpaid wages) –– all of which can end up being very costly.

It is important to note that individuals are not allowed to forfeit their rights under wage and hours laws –– so even if interns offer to work for free in exchange for college credit or simply the experience that a company would not otherwise offer or be willing (or able) to compensate them for, employers must still observe the wage and hour laws. And, generally speaking, most employers must pay at least minimum wage and overtime to their interns under federal and state regulations.

Pursuant to the DOL, in order to qualify as an unpaid internship: (1) the internship must provide training that would be given in an educational environment; (2) the internship must be for the benefit of the intern (and not the company); (3) the intern cannot displace a regular employee, but rather must work under close observation of existing staff; (4) the employer that provides the training will not derive an immediate advantage from the activities of the intern and, on occasion, the employer’s operations may actually be impeded; (5) the intern is not necessarily entitled to a job at the completion of the internship; and (6) both the employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

The Take-Away

Whether or not interns must be paid pursuant to wage and hour laws will depend upon all the particular circumstances surrounding their activities. To the extent that an organization wishes to utilize unpaid interns, appropriate programs, policies, and procedures should be developed that satisfy the DOL’s established criteria and that are specifically tailored to the particular organization. It is recommended that employers consult with legal counsel to evaluate their use of paid or unpaid interns and for practical suggestions about the development and implementation of internship programs and policies. Conversely, “unpaid interns” may wish to seek counsel to explore their rights in the event that their internships appear to violate the criteria for unpaid internships established by the DOL.

Amy Beth Dambeck is a shareholder in the empoyment law group of Stark & Stark, 993 Lenox Drive, Lawrenceville.

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