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June 10, 2013 Talking Points

That summer intern may be legal liability

James F. Shea
David C. Salazar-Austin

Every summer, interns are welcome additions to companies around the country, injecting a fresh perspective and renewed energy while often providing much needed extra help. Even 20th Century Fox has an upcoming comedy, The Internship, that focuses on a group of interns at Google. But what happens when the Department of Labor starts investigating the nature of these internships? Far from being something to laugh about, internships are fraught with landmines the careful employer must avoid.

Companies must first determine if their interns are to be paid or unpaid. Federal and state departments of labor, as well as prominent plaintiffs' law firms, are increasingly vigilant in this area. Their focus is on unpaid internships which are really nothing more than unpaid work, as they search for wage and hour violations that may give rise to individual or class action claims for breach of the Fair Labor Standards Act and similar state laws.

With college students and recent graduates facing increasingly poor odds in their efforts to find employment, many interns eagerly agree unpaid internships because they believe it will improve their chances of securing a job once the internship is complete. The decision to accept an unpaid position does not, however, prevent an individual from later seeking unpaid wages. Indeed, the quid pro quo underlying many internships — the intern works for free now in exchange for the opportunity to secure a job at summer's end — is precisely the type of relationship that often gives rise to FLSA violations.

Generally, an internship position may be unpaid if six criteria are satisfied:

• The internship, even though it includes actual operation of the facilities of the employer, is similar to training that would be given in an educational environment;

• The internship is for the benefit of the intern;

• The intern does not displace a regular employee, but works under the close observation of existing staff;

• The employer that provides the training derives no immediate advantage from the activities of the intern and, on occasion, the employer's operations may actually be impeded;

• The intern is not necessarily entitled to a job at the completion 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.

These criteria, developed by the U.S. Department of Labor, are good guideposts for employers to follow, although individual states may have their own unique requirements. The overarching principle to keep in mind is that if the employer's business stands to gain from the intern's work, then it is likely that the intern must be paid a fair wage. The focus of the internship should be on the educational aspects of the experience rather than on operational or production objectives of the employer.

As these factors make obvious, an employer's decision to designate an internship position as unpaid will meet with significant scrutiny. To bolster any such decision, the careful employer should consider having the employee sign an agreement that describes the nature of the internship, tracking the factors discussed above. Employers should also consider targeting only those interns who stand to receive credit from an academic institution. Managers in charge of these interns should be instructed as to the limitations surrounding the intern's time with the company, most notably the requirement that they not be involved in productive work that benefits the business.

If the employer can mimic the traditional earmarks of an educational experience — a classroom setting, a department-to-department rotation, managers taking time away from their primary duties to educate the intern — then the unpaid internship is more likely to pass muster. On the other hand, any indicia that the employer is benefiting from the interns' work, such as reduced regular staffing levels and increased company productivity, will suggest that the interns should be treated as employees and compensated accordingly.

Bringing in unpaid interns can lead to exposure for unpaid minimum wage and overtime pay, employee benefits, meal and rest periods, and penalties. Even employers who properly emphasize the educational aspect of the experience should ensure that interns comply with the company's policies, including the company's sexual harassment and discrimination prevention policies.

Companies often make the mistake of affording interns leeway in their personal interactions in the workplace. Interns are just like other employees in that their harassment of another employee, or by another employee, can lead to significant liability under federal and state anti-discrimination laws. The careful employer should offer interns training on how to comport themselves in the workplace.

Interns can bring significant value to a company. The balance, though, is that companies must exercise caution and be careful to ensure that there is a clear difference between an intern and a regular, compensated employee.

James F. Shea is a partner and the litigation manager in the Hartford office of Jackson Lewis where he specializes in employment litigation and preventive counseling. David C. Salazar-Austin is an associate in the Hartford office who represents employers in all aspects of employment litigation. 

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