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Is Your Unpaid Intern an Employee? Maybe . . .

July 20, 2010

By Wayne D. Landsverk & Merril A. Keane,
Miller Nash LLP
,
Oregon and Washington Law Firm

School is out, and summer internships are beginning across the Northwest. Employers might not be thinking about whether their unpaid summer interns qualify as employees under the Fair Labor Standards Act (the “FLSA”). After all, the intern and the employer are on the same page: The intern gets valuable experience, so there is no obligation to pay. Right . . . ?

This spring, the U.S. Department of Labor (“DOL”) announced strict criteria for unpaid internship positions. Scrutiny of unpaid internships is on the rise in Oregon, as recently reported by the New York Times.1 According to DOL guidance, a position will not qualify as a “training program” that is exempt from wage-and-hour rules under the FLSA unless the following six factors are met:

. 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 experience is for the benefit of the intern;

. The intern does not displace regular employees, but works under close supervision of existing staff;

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

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

If any of the factors are not met, the position will be considered “employment” under the FLSA, and the intern will be entitled to be paid at least minimum wage, plus overtime at the rate of time and a half for all hours worked in excess of 40 in a workweek. An intern program that is geared toward training the intern with general skills that could be applied in a variety of employment environments-similar to an academic experience-is more likely to meet DOL’s criteria. A program that focuses on the employer’s individual operations, in which the intern performs “productive work,” is less likely to meet DOL’s criteria.

A finding that an unpaid intern is an “employee” under the FLSA could have far-reaching consequences beyond wage-and-hour claims. For example, the employer may also be in violation of workers’ compensation, unemployment compensation, withholding, and other federal and state tax laws. It may turn out that the intern is even eligible to participate in the employer’s benefit plans as an employee.

If a company chooses to bring on unpaid interns this summer, it should take all steps necessary to satisfy all the DOL criteria and document such steps in the intern’s file. For example, detailed records of time spent by employees training interns should be kept. Care taken on the front end of the relationship can help to avoid later claims for back pay and other benefits.

Sources:

1 Steven Greenhouse, The Unpaid Intern, Legal or Not, NY Times, Apr. 2, 2010, available at www.nytimes.com/2010/04/03/business/03intern.html?hp.

  
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