To Pay or Not to Pay? Unpaid “Internships” Facing Greater Scrutiny

Now that spring has finally sprung, the summer internship season is nearly upon us and the topic of unpaid internships is timely. After years of relative legal obscurity, unpaid internships have been the source of several lawsuits over the past few years challenging the legality of engaging “interns” to perform services without pay under the federal Fair Labor Standards Act and similar state laws.

Much of the litigation began after the U.S. Department of Labor issued a fact sheet on the topic in the spring of 2010. This fact sheet begins by noting that anyone who is performing “work” is presumptively an employee entitled to the legally mandated minimum-wage and overtime pay. However, under certain circumstances, the DOL recognizes that unpaid internships are legally permissible, but only where the following criteria are met:

1. 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;

2. The internship experience is for the benefit of the intern;

3. The intern does not displace regular employees, but works under close supervision of existing staff;

4. 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;

5. The intern is not necessarily entitled to a job at the conclusion of the internship; and

6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

As noted by the DOL, “[i]f all of the factors listed above are met, an employment relationship does not exist under the FLSA” and the intern need not be paid.

Significantly, the DOL limited this guidance to “for-profit” institutions—unpaid internships at non-profit and public-sector institutions are likely to face far less scrutiny. See, e.g., Hill v. Watson, 13 C 6106, 2014 WL 440371 (N.D. Ill. Feb. 4, 2014).

Many employers have viewed the test promulgated by the DOL as too strict and are currently challenging it in court. While the DOL test has not met with unanimous approval in the courts, to date no court has rejected it outright, and the Second Circuit is set to weigh in on it sometime soon. See Wang v. The Hearst Corp., No. 13-2616 (2nd Cir.) and Glatt v. Fox Searchlight Pictures Inc., No. 13-4481 (2d Cir.).