Employers Beware: Unpaid Internships May Violate Federal Wage and Hour Law

Each summer, students of all ages seek out unpaid internships to gain practical workplace experience. Most unpaid interns and employers consider the relationship a win-win—the intern gets a foot in the door for regular employment and the employer gets the benefit of some unpaid work from an energetic worker. However, there are some serious legal considerations every private employer—including startups and small businesses—must consider before using unpaid interns.

Generally, under the federal Fair Labor Standards Act (FLSA), an employer is required to pay their employees at least minimum wage for all hours worked along with overtime for any time worked in excess of forty hours in a given week, unless an exemption applies. The FLSA definition of "employee" is very broad. An intern who receives training from a for-profit company for his/her own educational benefit may fall outside the classification of "employee" under extremely limited circumstances. In making this assessment, the United States Department of Labor ("DOL") applies the following six-part test to decide whether a worker is properly classified as an unpaid intern as opposed to an employee:

1. the internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. the internship experience is for the benefit of the intern;
3. the intern does not displace regular employees, but works under close supervision of existing staff;
4. 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;
5. the intern is not necessarily entitled to a job at the conclusion of the internship; and
6. the employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

The DOL has issued guidance addressing this issue of unpaid interns for employers. (See DOL Fact Sheet #71: www.dol.gov/whd/regs/compliance/whdfs71.pdf.).

New Hampshire employers must also keep in mind that in addition to complying with the federal rules on internships, they must also comply with the state laws governing school-to-work programs. (See N.H. Department of Labor website for further information: http://www.nh.gov/labor/inspection/school-to-work.htm)

Use of interns should be closely monitored to ensure compliance with federal and state law and to help avoid liability for misclassification. Employers who violate these laws and fail to properly compensate interns may face harsh penalties that include owing back wages, overtime pay, attorneys' fees, interest, and liquidated damages.

.....

The Devine, Millimet & Branch Small Business Practice Group offers this free E-Mail Alert service to provide information on recent developments in business law. If you have any questions about this e-mail, or if you know of anyone else who may be interested in receiving these alerts, please send us an email at smallbusiness@devinemillimet.com.

This is not a legal document nor is it intended to serve as legal advice or a legal opinion. Devine, Millimet & Branch, Professional Association makes no representations that this is a complete or final description or procedure that would ensure legal compliance and does not intend that the reader should rely on it as such.

© Copyright 2013 Devine Millimet & Branch, Professional Association