As published in Toledo Business Journal - May 1, 2017
by Renisa A. Dorner, Esq. and David M. Smigelski, partners with the law firm Spengler Nathanson
Under the Fair Labor Standards Act (FLSA), we all know employers must pay “employees” for all work performed. This can be accomplished through an hourly wage rate or salary. What about the neighbor’s kid, your sister’s niece, or the son of the VP, who is in college and merely wants some “experience,” do they have to be paid? These 20-somethings might even express how they understand you have no job openings and cannot pay them, but then suggest an “unpaid internship.” Now, to any business owner or HR manager, the word “unpaid” sounds pretty darn good and might be enticing, except for that little voice in your head reminding you “nothing in life is free.” So, if you face a request to provide an “unpaid internship” to the neighbor’s kid, your sister’s niece, or the VP’s son, what should you do?
First, if you have never had an internship program and don’t want to consider the ramifications of starting an internship program, then you simply answer “our company does not offer unpaid internships unless the internship is structured and provided through a local university or college and provides the intern with college credit toward a degree.” A structured internship program resulting in college credit typically results in a finding that it is a valid unpaid internship program.
Alternatively, if you would really like to help out the neighbor’s kid, your sister’s niece, or the VP’s son, then you could offer them (assuming the budget will allow) a short duration, minimum wage paid internship for a period of, say, 6 weeks. They will have the advantage of including the internship on their resume, and your company has helped a young student gain some experience at a low cost to you (approximately $1,500 if they worked 30 hours a week for 6 weeks). While this wouldn’t be an “unpaid’ internship, it does minimize your liability.
Finally, if you want to develop an “unpaid internship,” then you need to properly structure the program in order to avoid the trappings of having an unintended employee. The Department of Labor (DOL) issued Fact Sheet #71 identifying the six-factor test for determining whether a program is properly an unpaid internship. The following six criteria are applied under the DOL’s test:
The internship, even though it includes actual operation of the facilities of the employer, is similar to training which 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.
Courts typically focus their inquiry on who receives the “primary benefit” of the work being performed, the intern or the employer. If the employer is replacing a regular employee with the work being performed by the unpaid intern, then the “internship” would likely be considered primarily benefitting the employer, rather than the intern.
Employers should consider these and additional factors before agreeing to an unpaid internship. If your unpaid internship program is questionable as to who is really being benefitted, then you may want to pay the interns minimum wage and limit the duration of their employment. They get the valuable experience they want and you limit your legal liability.