Aug 14, 2013

Unpaid Internships Might Be Expensive To Employer

An unpaid internship can provide an individual with valuable experience, business contacts, an improved resume, and a possible paid job. However, employers who improperly classify an individual as an unpaid intern can face liability under the Fair Labor Standards Act (“FLSA”) even if the individual “volunteered” to work.

Employers often misclassify temporary workers or “trainees” as unpaid “interns,” instead of as paid employees.  Several high profile lawsuits were recently filed based on misclassifications. Two former unpaid interns who worked on the film “Black Swan” sued Fox Searchlight Pictures, Inc. The Court recently ruled that the plaintiffs were misclassified as “trainees” rather than employees and were entitled to minimum wage and overtime pay. Two former unpaid interns sued NBCUniversal, Inc. on July 3, 2013, claiming that they were misclassified under the FLSA and should have been paid minimum wages. Interns who worked for W Magazine and The New Yorker filed a complaint on June 13, 2013, alleging 14-hour work days and the magazines received an advantage from the “internships” because they were not paid minimum wage and overtime. In late 2012, PBS journalist Charlie Rose settled for approximately $250,000 in back wages to a class-action consisting of approximately 189 former unpaid interns. Each intern received approximately $110 for each week that the intern worked.

Even though not all of the courts use it, the U.S. Department of Labor’s Field Operations Handbook has the following six-factor test that if satisfied will result in a worker not being entitled to minimum wages or overtime and should minimize the litigation risk for an employer:

  1. The internship must be similar to training given in an educational environment;
  2. The internship must be for the benefit of the intern;
  3. The intern may not displace regular employees and must work under the close supervision of existing staff;
  4. The employer may not derive any immediate advantage from the activities of the intern and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the end of the internship, and
  6. The employer and intern understand that the intern is not entitled to wages for the internship.

Members of the Labor and Employment practice group routinely assist clients with FLSA issues. If you have any questions regarding this issue, be sure to contact your employment counsel at Smith, Gambrell & Russell, LLP.

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