Due to a recent federal court ruling, Hollywood producers at Fox Searchlight Pictures, Inc., will be singing a swan song for its unpaid internship program. They will also be saying goodbye to a healthy chunk of cash for their violations of the Department of Labor’s (DOL) Fair Labor Standards Act (FLSA) regarding the misclassification of interns who worked on the set of the film Black Swan as “unpaid.” While strict regulations about unpaid internships have been on DOL’s books for decades, time and again employers assume that because “we’ve always done it that way” that “it must be legal.” Well, think again.

The road for an employer to offer an unpaid internship that does not violate the DOL’s Fair Labor Standards Act is very narrow — more like a bike path than a road. It has become a best practice in many industries to at least offer minimum wage to interns to avoid scrutiny of the program or possible litigation. There is a six-factor compliance test for an internship to be unpaid:

• The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school.
• The training is for the benefit of the trainee.
• The trainees do not displace regular employees, but work under close observation.
• The employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion the employer’s operations may actually be impeded.
• The trainees are not necessarily entitled to a job at the completion of the training period.
• The employer and the trainee understand that the trainees are not entitled to wages for the time spent in training.

All six factors above must be met in order for the internship to be unpaid, but three seem less black-and-white to employers trying to twist their internship to fit the unpaid criteria, so let’s swan-dive deeper into those.

#2. The training is for the benefit of the trainee. The intern should be learning something and gaining knowledge that they did not have before interning with your organization. If you selected them because they already know how to do what you need done, that’s a red flag. If the internship is designed around meeting an employer’s need and the work adds value to the organization, inherently or monetarily, the intern assumes employee status and must be paid at least minimum wage.

#3. The trainees do not displace regular employees, but work under close observation. In layman’s terms, don’t have an intern perform work that employees have performed, do perform or would need to perform if the intern were not there. All work must be closely supervised by an assigned mentor/instructor. They do not work independently. Bottom line, if you would otherwise have to pay someone else to do it when an intern isn’t there to do it, you’ll have to pay the intern to do it too. They’re an employee.

#4. The employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion the employer’s operations may actually be impeded. This is where the rubber hits the road…or bike path. The employer is not supposed to benefit from the internship — in fact, the expectation is that it should, to some degree, be a burden to the employer. Most of the case law cited is on this factor. If an intern answers a phone that otherwise would have needed to be answered by someone else, the employer has experienced an “immediate advantage” from the intern’s “employment” and therefore the intern must be paid like an employee. To split hairs, if the scope of the internship, for example, is research, and that research does not benefit the employer in its raw state and does not become of value to the employer until a paid staff person further “processes” it, that single activity could meet test #4 for an unpaid internship. But the question still remains, what else are they doing for you?

Many employers falsely believe that if their internship is coordinated through a college or university for credit, then it automatically qualifies to be unpaid. Not so. The first criteria requires that the experience should be “similar to that which would be given in a vocational school” for the intern, but it does not specify anything about college credit. A paid internship would obviously remove the handcuffs and it could be of long-term benefit to an employer to explore paid internships as a mutually beneficial relationship.

Sometimes nonprofit organizations believe that the internship regulations are different for them or don’t apply, but in reality there is only one set of compliance criteria for both not-for-profits and corporate America. This confusion may be due to the frequency that nonprofits use unpaid volunteers, which is (or should be) very different than the “work” of an intern.

Engaging unpaid volunteers has DOL compliance issues as well. To continue the metaphor, it’s a two-lane country dirt road compared to the man-made bike path through the rough grass that an unpaid internship can be.

The four-factor compliance test for an unpaid volunteer not to fall into the category of employee (and therefore require compensation) is far easier to demonstrate compliance with. The one that generates the greatest liability (and lawsuits) is the first:

#1. The individual must not be characterized unilaterally by the entity as a volunteer in order to avoid minimum wage or overtime obligations. Often, this is used to protect existing employees who are asked to “volunteer” off the clock so the employer can avoid additional compensation or overtime, but equally there are cases where the creation of “volunteer” positions inadvertently (or intentionally) displaced paid workers and employers were found to be liable.

Best practice is to avoid tasking volunteers with work that has traditionally been performed by paid staff. Volunteers need to be free to come and go on their own schedule, they perform only the work that interests them and they can’t be held to performance standards like an employee. When you consider all that, it’s frequently more effective and (less risky) to just hire someone to get the work done.

That’s not to dismiss the educational value of an internship or the philanthropic value of volunteerism, but more often than not, when managers inquire about getting some unpaid interns, the motive is not, “How can my organization give back to the field and community at large by providing these kinds of volunteer and internship opportunities, even if it costs us productivity and time?” but rather “How can I get some of this work done for free?” That second thought is precisely what the regulations were written to prevent.

If you have an existing unpaid internship program, don’t assume that it’s in compliance just because “we’ve done it that way for years.” Now is the time to give it a solid review and adjustment, if needed. With rare exception, most internships that employers designate as unpaid don’t qualify under FLSA. Bottom line — if you don’t give your interns minimum wage, the courts may give them much more.


Lauren Yost is NRPA’s Vice President of Operations.