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Interns: Will work for experience (sometimes)

by Lyndel Erwin

An eager young college graduate approaches you looking for work as an intern and offering to do the job for free just to gain experience and make contacts in the industry. A retiree offers to volunteer in your hospital just to have something to fill her day. It looks like a win-win situation for everyone involved, but as is often true in life, rarely is anything really free. The U.S. Department of Labor (DOL), the agency that enforces the Fair Labor Standards Act (FLSA), often is skeptical of such generosity of spirit. To avoid paying minimum wage and overtime, you have to meet strict requirements, even if everyone involved agrees that the work should be uncompensated. Here’s a look at what the FLSA rules say about volunteers and interns.

Too good to be true

Typically, a volunteer performs her duties on a part-time basis and has no expectation of receiving any compensation. As a general rule, the only employers that may use uncompensated volunteers are public agencies, religious organizations, or entities with humanitarian objectives, such as hospitals using volunteers to sit with patients, deliver mail or flowers to them, or run errands for them. However, the DOL’s Wage and Hour Division (WHD) takes the position that volunteers may not perform administrative work. The WHD also has taken the position that people working in a nonprofit hospital gift shop are considered employees because the gift shop is an entity that competes with profit-making businesses.

In many cases, a person may offer to work as an intern without being paid. In the current economy, people other than recent college graduates are offering to serve as unpaid interns. Your first inclination might be to think of an intern as free labor and readily accept the offer. However, before doing so, you should consider the possible ramifications of allowing someone to work at your business without being paid. As you know, unless they’re otherwise exempt, all employees covered by the FLSA must be paid at least the federal minimum wage of $7.25 per hour and 1.5 times their regular rate of pay for all hours worked in excess of 40 in a workweek. Failing to pay a worker properly could result in being required to pay wages plus an equal amount of liquidated damages and attorneys’ fees.

In 2011, Fox Searchlight Pictures, Inc. (a subsidiary of media giant News Corp.), was sued by two former interns who allege that they performed the same duties as employees. The interns are seeking to have the case proceed as a collective action under both the FLSA and New York labor laws and to represent more than 100 current and former interns. They contend they should have been treated like employees because they functioned as production assistants and bookkeepers and performed secretarial and janitorial work.

The complaint further alleges that the interns put in as many as 50 hours per week and worked approximately 95 full days. One of the interns stated he was paid for one day because the firm’s production accountant didn’t believe it was fair that he worked 12 hours on a Sunday for no pay, but he didn’t receive any pay for the other time he worked. The suit is still pending. Similar lawsuits have been filed against other employers.

Follow the six-factor test
The FLSA’s definition of “employee” is very broad, but persons who work for their own advantage on the premises of another, without any express or implied compensation agreement, may not be employees. Workers who receive work-based training may fall into that category and may not be employees for purposes of the FLSA. The specific facts and circumstances of the worker’s activities must be analyzed to determine if he is a bona fide “trainee” who isn’t subject to the FLSA or an “employee” who may be subject to the Act. The employer is responsible for complying with the FLSA, and the intern’s participation in a subsidized work-based training initiative does not relieve the employer of that responsibility.

The WHD has developed six factors to evaluate whether a worker is a trainee or an employee for purposes of the FLSA:

  1. The training, even though it includes actual operation of the employer’s facilities, is similar to what would be provided in a vocational school or academic educational instruction.
  2. The training is for the benefit of the intern.
  3. The intern does not displace regular employees but works under their close observation.
  4. The employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion, its operations actually may be impeded.
  5. The intern is not necessarily entitled to a job at the conclusion of the training period.
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in training.

There are several factors that can help bolster the case that an intern isn’t an employee:

  • The internship program is structured around a classroom or academic experience.
  • The intern receives oversight from a college or university and receives educational credit for the experience.
  • The employer provides “job shadowing” under the close and constant supervision of regular employees rather than asking the intern to perform the same duties as regular workers.
  • The internship is of a fixed duration, and there is no expectation that the intern will be hired at the conclusion of the internship.

If all those factors are met, then the worker can be considered a “trainee,” and an employment relationship doesn’t exist under the FLSA. As a result, the Act’s minimum wage and overtime provisions don’t apply to the worker.

Because the FLSA’s definition of “employee” is broad, the excluded category of “trainee” is necessarily quite narrow. Moreover, the fact that an employer labels a worker a trainee and deems his activities training or a state unemployment compensation program develops what it calls a training program and describes the unemployed workers who participate as trainees doesn’t make someone a trainee for purposes of the FLSA unless the six factors are met.

Lyndel Erwin is a wage and hour consultant with Lehr Middlebrooks & Vreeland, P.C., in Birmingham, Alabama, and a contributor to Alabama Employment Law Letter. He has more than 35 years experience with the Department of Labor, where he served as the District Director with responsibility for Alabama and Mississippi and earlier as the District Director in Ft. Lauderdale, Florida. He may be contacted at lerwin@lehrmiddlebrooks.com.