Corporate Governance, Employment

Unpaid Internships – Traps for the Unwary

Every summer, clients come to me asking for an agreement to use with their new interns. 

Written by Amit Singh · 1 min read >

Every summer, clients come to me asking for an agreement to use with their new interns.  Since I represent many technology start-ups, this is not surprising since the prospect of using interns can seem like a great way to save money, since you can hire some smart students to work for free.  However, this is generally a risky proposition, at least if the company actually wants to receive anything of value outside of providing a learning experience to a promising student.  Internships are a great opportunity for students or recent graduates to learn valuable practical skills and increase their prospects for receiving a high paying job later.  However, employers looking to receive free labor need to seriously rethink their strategy and should instead pay their interns at least minimum wage.
In April 2010, the US Department of Labor set forth a 6 part test that must be met in order for a person to be legitimately classified as an intern rather than an employee.  The requirements are as follows:

  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.

If an internship program does not meet these 6 requirements, the proposed intern must be treated as an employee in compliance with wage and hour laws, meaning the person must be paid at least minimum wage and receive overtime pay with any required breaks.

On June 11, 2013, in Glatt v. Fox Searchlight Pictures, Inc., a New York District Court held that two unpaid interns on the set of the film Black Swan were improperly classified as trainees and that the interns were entitled to wages under the Fair Labor Standards Act and New York’s equivalent law.  The “internships” failed the 6 part Department of Labor test.  The court found that the interns performed the same duties that paid employees would perform, providing a benefit to the employer without receiving any true educational benefit.  The internships weren’t designed to benefit the intern and were not uniquely educational.  Rather, the interns performed “routine tasks that would otherwise have been performed by regular employees.”  As a result, the interns were entitled to paid wages like any other employees on staff.

As a result of Black Swan case and other recent cases against Conde Nast and other employers, it is clear that employers should not take on interns in the hopes of receiving free labor for necessary work.  Rather, the intent must be to provide an educational experience to the intern, with little or not benefit to the employer.  The internship must be for the benefit of the intern and provide educational opportunities to the intern.  The employer must receive only minimal benefit.  Otherwise, the intern may be reclassified as an employee, entitled to wages.