Interns aren’t just free labor: How to comply with the FLSA

August 8, 2011
in Employment Law

The Fair Labor Stand­ards Act (FLSA) defines an employee as “any individual employed by an employer.” To “employ” means “to suffer or permit to work.”

So how do unpaid interns fit into this picture? No doubt, many believe they are both permitted to work … and suffering, perhaps because they’re not being paid.

The FLSA doesn’t specifically address unpaid interns, but where the law is silent, the U.S. Supreme Court has spoken. In Walling v. Portland Terminal Co. (330 U.S. 148, 1947), the Supreme Court ruled that individuals who work without any express or implied compensation agreement on an employer’s premises are not employees, if they benefit by receiving training or experience.

WHAT’S NEW: With job markets tight and employers shunning applicants with long, unexplained résumé gaps, the ambitious unemployed are opting for unpaid internships. On the surface, that looks like a win-win: The employer gets free labor in exchange for valuable training. The intern also builds skills and prevents big résumé holes.

Traditionally, interns were relatively young, inexperienced workers hoping to land a paying position at some point. But hard times have forced older workers to try the intern option. Older interns may have valuable life and work experience that employers crave. They see the internship as a way to prove their worth to an employer and update their skills.

From the employer’s side, the risk is relatively small. The employer can give complex tasks to an experienced intern for the cost of a computer, some office space and a little coffee.

But before you get carried away by the prospect of marvelous production for virtually no cost, let’s have a reality check.

The FLSA requires interns to receive some educational benefit from the internship. Further, the employer-intern relationship must meet six criteria to be in compliance. Employers that fail to meet all six must pay the intern at least minimum wage.

In some cases, the intern may ­actually be entitled to benefits, meal breaks, overtime and penalties in ­addition to wages.

HOW TO COMPLY: To avoid having to pay interns, employers must meet all six criteria laid out in U.S. Department of Labor Fact Sheet #71. They are:

  1. The internship, even though it includes working at the facilities of the employer, is similar to training that would be given in an educational environment.
  2. The internship is for the benefit of the intern.
  3. The intern does not displace a regular employee, but works under close observation of existing staff.
  4. The employer that provides the training derives no immediate advantage from the activities of the intern. On occasion, the employer’s operations might actually be impeded.
  5. The intern is not necessarily entitled to a job at the completion of the internship.
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

No single criterion determines whether your intern is an employee or an intern. Courts would look at the situation in its entirety with these criteria in mind.

Clearly, however, some situations will set off compliance alarms. If you are using an intern to replace an employee, for example, you’re looking for trouble. Both federal and state labor departments will find you in violation of wage-and-hour laws.

The educational aspect

Not as obvious, but just as important, is the educational component of the internship. To be safe, compile a list of various educational goals the internship is designed to accomplish.

Even when dealing with traditional college or trade-school internships, you should still protect yourself with this step. The educational objective list will provide cover for both employer and educational institution against claims that an internship is just a source of cheap labor.

Today’s nontraditional intern may not enter the internship through an educational institution. Regardless, the law still requires the experience to be “similar to training that would be given in an educational environment.”

Documenting the intern’s progress along the way can also bolster the case that the internship is legitimate.

Is it an employment contract?

If you decide to bring interns aboard, have each one sign a contract indicating that he or she is not entitled to pay and that you are making no guarantee of future employment. Not only does this protect you from contractual obligations, it also is required to preserve the internship arrangement under the FLSA.

The contract should include a clause stating that the contract can only be changed in writing. Other­wise, interns can assert that management promised a job once the intern­ship was over.

Train managers not to make any promises of employment to interns other than to say that they may be considered for any future openings.

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