Fair Labor Standards Act Bites Employers of Unpaid Interns

imagesThe Fair Labor Standards Act (FLSA) is an archaic statute that still packs a punch. Passed in 1938, when the nation was in the throes of the Depression, the law was designed to maximize the number of jobs created by limiting the number of hours that employees could work.

In essence, the FLSA requires employers (a) to pay at least a minimum wage, and (b) to pay overtime wages (at 1.5 times the base wage rate) to employees who work more than 40 hours/week. Employees are covered by this law, unless they fit into an exemption. There are four primary categories of “exempt” employees: managerial/executive employees, administrative employees, professional employees, and outside sales employees.

FLSA litigation has expanded in the last ten to fifteen years. Many lawsuits arise out of disputes over whether an employee is exempt or non-exempt. Other cases deal with what time is compensable (time spent donning and doffing uniforms, clocking in, commuting time, breaks, etc.)

These cases are increasingly brought as class actions – with plaintiffs’ attorneys seeking huge damage awards across the class. If a thousand employees making even just $10/hour are underpaid for fifteen minutes/day for 250 working days in a year for a two year limitations period, the damage award – at straight time! – is a total of $1,250,000. And in many cases, the damages are at higher wages rates, or for overtime, or for a three year limitations period, or for more employees. Plus, damages can be doubled in a case of intentional wrongdoing.

And the attorneys always get their fees on top of the wage awards. These can be time-consuming cases, and are therefore lucrative for lawyers.

Office Clocks Showing Different TimesThe FLSA requirements and the recent recession have given rise to an increase in cases involving unpaid interns. In today’s job environment, recent college graduates and others seeking employment are often willing to work for nothing to get a foot in the door. Many employers want to reduce their costs, and will use unpaid interns for free labor. This practice has been particularly prevalent in the media industry – both old and new media.

For more on the prevalence of unpaid interns, see the Wall Street Journal article, Interns Are Increasingly the Route to Winning a Job, by Melissa Korn, published on June 6, 2013, and the MSNBC story The unpaid internship racket, by Timothy Noah, June 20, 2013.

Under a Department of Labor interpretation (Fact Sheet #71, issued in April 2010), the criteria for using unpaid interns are:

  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.

Now, why would an employer use an unpaid intern if the employer provides no immediate advantage from the intern’s activities, and, in fact, the employer’s business might even be impeded by the intern? Obviously, DOL does not like unpaid interns.

Even when the interns are still students, the practice of using them as unpaid workers is problematic. It is easier in student situations to show the intern is receiving training and that the experience is for the benefit of the student. But still, their presence probably provides some advantage to the employer, or they wouldn’t be there.

??????????????????In Glatt v. Fox Searchlight Pictures, a recent federal case in New York, two interns who worked on Fox movie productions sued for wages after their unpaid internships ended. The district court judge found that these interns were employees, and permitted them to pursue a class action against Fox. The judge ruled that, even though the interns’ work was menial (filing, etc.), it was essential to the business and would have required paid employees if the interns had not been there.

I don’t have much sympathy for for-profit companies seeking to use unpaid labor. While I believe that the FLSA needs substantial updating to be relevant to today’s workforce, employers should design their organizations to pay for the work they need done.

When I was practicing employment law, I advised my clients, even those in the media business, that they faced a substantial uphill battle to justify using unpaid interns. I didn’t like the practice then, and it is even riskier now.

As one commentator has opined,

Employers that use unpaid interns should pay careful attention to this issue. It is far better to scrutinize interns under the DOL’s six factors before the agency, or a group of plaintiffs, swoop in and do it for you. It is even better to formalize the relationship in a written internship agreement that formally spells out how each of these six questions is answered in your favor. Or maybe it is best simply to assume that except in rare cases, there is no such animal as an “unpaid intern,” and you should simply accept the fact that if you are going to label entry-level employees as interns, you need to pay them for their services.

I think using unpaid interns in a non-profit employer is a closer question. In the non-profit context, when are people employees and when are they volunteers? For example, a non-profit social service agency may pay a receptionist, but may have a volunteer fill in when the employee is on vacation. Or a church may hire a groundskeeper, but rely on parishioners to perform much of the grounds-keeping labor.  Shouldn’t these practices be acceptable?

When do you think unpaid interns should be permitted?


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