Unpaid internships have long been a staple of American business. Internships have expanded from the traditional summer interns that companies have used for many decades to year-round use of interns.
The media traditionally uses more interns than businesses in other industries. The current expansion to more year-round intern use is fueled by those hoping to change careers and people hoping to prove their value to potential future employers.
Along with these increases in intern opportunities, there are more people questioning the legality of employing unpaid interns. Recent litigation, particularly class action lawsuits, will test the validity of US Department of Labor (DOL) guidelines. The DOL uses these guidelines to determine the legal use of unpaid interns by employers.
The DOL used a 1947 Supreme Court decision as the foundation for their published guidelines. Employers legally having unpaid interns must currently satisfy six components of their retention of unpaid interns.
1. Although the intern works at an employer’s facility, the intern should receive training similar to classroom instruction at a post-secondary school.
2. The real world experience gained is for the benefit of the intern, not the company.
3. Employer staff closely supervises the intern, but the internship does not ‘displace’ regular paid employees.
4. The intern receives no promises or guarantees of a job at the end of the specified internship period.
5. Employers receive no immediate benefits or advantages from the duties of the intern.
6. Both the employer and the intern agree and understand that the internship is unpaid and no compensation is due.
Interns and employers who meet all six features are engaged in legal associations. The DOL admits that intern arrangements can be illegal if the intern does not receive useful training for their own educational pursuits. The employer must verify that such training was done, or the intern is considered an employee and must be compensated.
Current guidelines may change dramatically after the current lawsuits are adjudicated. Should the plaintiffs be successful in challenging unpaid internships, the definition of interns will become quite different than traditional views. Not surprisingly, the most notable lawsuits involve the entertainment and publishing industries, the largest and most frequent users of unpaid interns.
Businesses have a great deal on the line. If the courts decide in favor of the intern plaintiffs, their employers will be responsible for unpaid wages and, possibly, uncompensated overtime. Depending on the court definition of their employment, the employer may also be responsible for benefits, including health insurance, paid vacation and sick time. Employers may also face IRS penalties for underpayment of employment taxes.
If courts find violations of the DOL guidelines or decide to redefine the term employee, many dollars could change hands. For the moment, unpaid internships are legal, if they meet DOL guidelines. The future of unpaid internships, however, is uncertain.
Small Business Law | Ryan C. Young, Attorney | Richmond, Virginia
