May 15, 2018

Hiring an intern this summer? Here is how to keep it legal

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Back in the day when I was a TV reporter looking for my first job, the ONLY way to get a full-time job in the field was to pay your dues as an “intern”—which meant working lots of hours GRATEFULLY and for free.

In fact, my initial “interview” at a TV station in Milwaukee was a 10 hour unpaid, food-deprived day where I produced a news report for the 5 and 10 o’clock news and nobody even told me about the cafeteria upstairs. While I was bitter they tried to starve me, I was so stinkin’ happy to get the chance to work all day for free and yes, I got the gig.

Whole industries (magazines, media, financial services, insurance, movies, etc) have been oiled by this free labor for decades. That is until two interns at Fox Searchlight Pictures working on the film Black Swan filed a lawsuit claiming their employer broke the law by not paying them. More suits in other industries quickly followed. And, while the Black Swan decision was later overturned by the U.S. 2nd Circuit Court of Appeals, the damage was done to internships. Lawyers told clients “tread carefully and pay them!!” and from where I sit, it's still good advice.

Summer interns are certainly a time-honored tradition. It’s a potent cocktail of altruism mixed with budgeting limitations and an abundance of small business tasks (plus they're are a great way to test future prospective employees). Many people like me had internships shape their professional lives. But if you're thinking of giving your neighbor’s 18-year-old daughter a foot-in-the-door while getting the office caught up on filing and data entry without considering the possible legal ramifications, think again. The waters are turbid thanks to those lawsuits and you need to understand the risks.

Like any other Department of Labor (DOL) rule under the Fair Labor Standards Act (FLSA), there is a seven-factor analysis called the Primary Beneficiary Test to determine whether summer staff can really work for free. Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act from the Department of Labor explains that "Courts have identified the following seven factors as part of the test:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.  
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.  
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.  
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.  
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.  
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.  
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship."

On the one hand these factors seem to weigh much more in favor of the employer than a couple of years ago. But #6 is super tricky because it requires that the intern receive more out of the experience than the employer.

That is what we lawyers call malleable -- and malleable = risky.

Worse yet the DOL confirms the test is open to interpretation: “No single factor is determinative, and the analysis always depends on the unique circumstances of each case.” This vague declaration and that phrase “To the extent to which” could provide wiggle-room for would-be plaintiffs. Here is the link to a fact sheet if you want to check it out yourself.

Also, you can’t forget local government’s role in the matter. Many states, municipalities, and counties are becoming very active in issues of wage and hours so even if you pass muster with the DOL, you may have another issue somewhere else.

So what’s the safest route? Unless your Company has a very structured internship program and interns receive credit directly from a school (meaning you as the employer are dealing with the university or other agency by providing reporting, etc) you should probably pay them minimum wage.

Don’t forget that in Arizona you must also provide them with paid sick time.

I hear your groaning already.

Internship programs offer amazing benefits to both the employer and the intern. Please don’t shy away from them but make sure you are thinking through the issues. Feel free to reach out if you have any questions.