Be Aware Of Labor Laws Before You Decide To Hire An Unpaid Intern

from the save-now,-pay-more-later dept

Thu, Apr 15th 2010 3:23pm — Joyce Hung

Many companies have long been taking advantage of young, bright-eyed students and recent college graduates who are eager to work for nothing (or practically nothing) in the hopes that their work experience will eventually land them their dream job. But is it legal for a for-profit company to not pay a full-time intern? Talk to your lawyer, but generally, the answer is no. Only government and non-profit organizations are allowed to use unpaid interns without worrying about breaking the law. Given the rampant (ab)use of unpaid interns during this recession, the Department of Labor is starting to crack down on employers who don't pay their interns fairly. The confusing part, though, is that labor laws are somewhat outdated and open to interpretation.

The six federal legal criteria that must be met in order to hire an unpaid intern are based on a 1947 Supreme Court decision about whether the Fair Labor Standards Act (FLSA) was applicable to prospective train yard brakemen. (Hmm. When was the last time you heard about a good train yard internship?) Under the current FLSA, employers can hire an unpaid intern if all of the following conditions are met:

The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school or academic institution. The idea here is basically that any work should be for training purposes only -- not for the sake of getting real work done at the company.
The training is for the benefit of the trainee. This is generally true. Interns are happy to work for no pay if it means that in the end, they can put a company's name on their resume or even get a paid full-time job at the company.
The trainees do not displace regular employees, but work under close observation. This implies that interns shouldn't be doing actual work that might displace a paid employee.
The employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion the employer's operations may actually be impeded. When doesn't an employer gain an advantage from having an intern? This is where many companies can get into trouble. The definition of "immediate advantage" leaves a lot of room for interpretation.
The trainees are not necessarily entitled to a job at the completion of the training period. Companies often use internships as "working interviews" where the intern is hired as an employee after the internship is over if they perform well.
The employer and the trainee understand that the trainees are not entitled to wages for the time spent in training. This is generally not a problem, since both parties should agree to the scope of the internship.

So it's quite difficult to meet all six criteria, and hiring an unpaid intern based on a loose interpretation of the laws could cost employers more than just compensating for minimum wage and overtime. Think potentially huge fines and legal bills -- as well as long drawn-out legal proceedings. However, since the enforcement of the intern criteria has been lax for some time, many companies haven't put too much thought into their internship programs. Some startups have even incorporated somewhat questionable unpaid internship work into their business models. Just last year, the Huffington Post famously had an auction where the winner actually paid $13,000 (which went to charity) for an intern position. Clearly, the rules governing internships have not been well-established according to the 'modern' workforce.

The upshot of all this, though, is that unpaid interns have hidden costs and liabilities -- which can be significant. Labor laws seem to favor the benefit of the intern and seem to frown upon companies that might be trying to just get free labor. But besides running afoul of labor laws, unpaid interns without proper supervision can also come back to haunt employers, especially when interns represent the company and are trusted with interacting with clients. Add the Department of Labor looking into the issue, and there are even more reasons to double-check and make sure internship programs make sense.

What has your experience been with internship programs and training interns? What are your motivations for offering intern positions? Do you think labor laws need to be adjusted to reflect more current trends in the workforce? Tell us what you think in the comments below.

Filed Under: employers, internships, labor

29 Comments

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Doug Wheeler (profile), 15 Apr 2010 @ 3:45pm

Pay - Cost = $0.00
It seems like you could easily pay an intern for their time and at the same time charge them for the training and education they receive. This could be spelled out simply as a fixed cost for a certain number of paid training hours. The balance would be $0.00 except for cases of overtime or the like. Of course, taxes and benefits make this a bit more complicated, but it's still just "paper" money that can be tweaked to balance out.
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Quick Brown Fox, 15 Apr 2010 @ 3:54pm

Workers Comp
In California, organizations that use the services of volunteers must generally cover them under their workers compensation policies for injuries or illnesses incurred while performing their services.
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Anonymous Coward, 15 Apr 2010 @ 4:11pm

trying very hard to justify what amex is paying for this stuff?
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Ryan, 15 Apr 2010 @ 4:21pm

Implication
I'm sort of confused by what we're supposed to be taking or contributing to the article? The law seems to be another obvious case, like minimum wage, of the government interfering in the market to prevent mutually beneficial employment agreements between consenting individuals, without which both are worse off. However, the implication of the language is seemingly that companies are somehow taking advantage of interns by allowing them to voluntarily take an internship position over others that will pay them nothing but greatly help them in terms of their resume and skill set. Which is sort of like saying that colleges should pay students to attend there in the position of student (which they do for certain ones in the form of scholarships to draw in the most academically qualified individuals that will improve their rankings).

I took a paid internship when I was in college, but I was also pretty damn qualified at the time that I did so and the demand for us was greater than the supply. However, the education and references would have paid for themselves. It does seem quite foolish for the government to attempt to screw over those prospective employees that are either in too much supply or too unqualified to be worth a paid internship, thereby depriving them of valuable experience. Like I said above, it is basically just another form of minumum wage, which really just increases unemployment for many in order to marginally increase the wages of fewer.
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Anonymous Coward, 15 Apr 2010 @ 4:35pm

Re:
It's called advertising?
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NAMELESS.ONE, 15 Apr 2010 @ 4:41pm

aww but it costs so much to train min wage earners
LOL

that's what its about , wow that was short and easy
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NAMELESS.ONE, 15 Apr 2010 @ 4:41pm

@2 yea ok
so how many mexicans you got over there now?
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TheStupidOne, 15 Apr 2010 @ 4:42pm

Change the Laws
I'm a young engineer and have only been out of school for 2 years, but I was fortunate to have gotten good (and paid) internships while I was in school. However had I not gotten those internships and been only able to work fast food during the summers an internship after graduation would have been invaluable to my career. And experience is often more valuable than where you got your degree or what your GPA was. There are countless things that an intern can do that is valuable training and good for the company, so requiring that the intern not provide immediate value to the company is BS.

So change the law to allow unpaid interns to do anything and everything they are willing to do for no money. Require that interns receive employment benefits that full timers get so that they aren't totally abused.
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Conor Fitzgerald, 15 Apr 2010 @ 4:43pm

Varies by Industry
As a prospective intern, I've run into this issue a lot. I can't speak for every field but I've come across many vfx/computer graphics internships where a student is required to have advanced knowledge yet work for free. I understand the cases where an intern is actually a trainee, however in many cases the "internship" is in fact an unpaid entry level job. I recently came across a craigslist post looking for an unpaid intern to start a new division within their company. It also required the student to have personal access to software which costs several thousands of dollars. Here: http://chicago.craigslist.org/chc/web/1644982256.html
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Nate (profile), 15 Apr 2010 @ 4:56pm

What has your experience been with internship programs and training interns?

I've only been on the receiving end of an internship (called a co-op around here). My college requires all students to complete 3 semesters of co-ops and when students get back we all share our stories. From these stories I've learned that companies probably should make sure their co-op program is strong if they are even going to attempt one. Most of what I hear is "I did nothing. It was boring." If I ran a business and were paying for co-ops I would make sure I would never give them the chance to utter those words. Otherwise I would be losing money (granted co-op money is not much in comparison to your employees). I know this is a tangent topic, but I figured I would share.

Do you think labor laws need to be adjusted to reflect more current trends in the workforce?

I think the law covers this topic well enough. I haven't heard of any big problems coming out of this topic, though I certainly haven't been looking. Maybe there are more problems underneath the surface?
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Anonymous Coward, 15 Apr 2010 @ 5:38pm

Re: Implication
trying to pad out a new site with information to feed the search bots. otherwise not particularly informative especially when one considers that the laws are different all over the world. amex would be good to give up on this new site.
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Danny (profile), 15 Apr 2010 @ 7:51pm

Re: Pay - Cost = $0.00
If you fired them from the internship, you might then still owe them the contracted training (or at least their tuition back). It could get amusing if the fired obnoxious intern sued for specific performance.
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Danny (profile), 15 Apr 2010 @ 7:53pm

Re: Implication
Actually, the government is interfering because many interns seem to be taken advantage of.
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Michael Ho (profile), 15 Apr 2010 @ 9:58pm

Re:
Thanks for the answer, Nate. It's nice to hear from the intern viewpoint, too. Internship programs should be mutually beneficial, but I suppose the law restricts the employer benefit to be "non-immediate"... which might not be how employers really would like it.
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Jake, 16 Apr 2010 @ 1:48am

The fourth clause is so vague that it could mean whatever a competent lawyer wanted it to mean, but I'm at a loss for alternative wording that would be any better for what the law is intended to do, i.e. prevent employers from giving interns all the menial jobs they're too cheap to hire someone to do at minimum wage instead of teaching them something of actual value.
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Joe Perry (profile), 16 Apr 2010 @ 6:09am

Re: Varies by Industry
as a firm believer in personal responsibility, if you are either stupid enough to think that's a good deal or are willing to work unpaid because you think it could be beneficial in the long run (you might end up with a real job that pays at the company) then you are free to take whatever offers are present, and if you get screwed, it's really your fault. Especially in this case, if you wanna spend a lot of money on software and start a division for a company without getting paid, you only have yourself to blame when they fire you and don't even say thanks.
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MRK, 16 Apr 2010 @ 6:52am

Re: Varies by Industry
I encountered the same thing when I was in school. Nearly all internships for Graphic Design/Art/Computer Graphics were unpaid, and sometimes 40 hours a week. Often requiring you to live in a city with a very high cost of living. Not wanting to take out loans in a field with low entry level wages, and lacking the energy to work two full time jobs. I gave up on the field entirely.
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MRK, 16 Apr 2010 @ 7:00am

Re: Varies by Industry
It basically boils down to supply and demand. The supply of college students looking for jobs (or internships) outstrips the available jobs. So much so that it pressures the wages down to 0. Companies can get away with the shady internships because there are a lot of desperate students out there.
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PrometheeFeu (profile), 16 Apr 2010 @ 11:13am

I can think of no good reason to require paying interns. As an intern you gain a valuable entry in your resume which will often far outweigh the minimum wage you would otherwise receive. (I say entry in your resume, because getting coffee at a prestigious firm is good for your resume even if it's not much use as training) The expected value of an intern is likely to be very low because interns usually have very little to show that they will be useful to the company. As a result, it makes little sense to pay them anything at all. Of course, if you are a big firm with a big HR department, you can actually do good screening on the interns you take and therefore afford to pay them. I think this is a law that definitely needs changing. Unpaid internships are the way in the job market for many people and I'm not sure they would thank anyone who took their internship away.
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Ryan, 16 Apr 2010 @ 12:00pm

Re: Re: Implication
How? They're not being coerced into taking the position, are they? If they're worth being paid, then some other company will offer them a paid internship and they can take that one over the unpaid one and there's no point in this law. If they can't find a paid internship, then the alternative is that they don't get one at all and are denied the opportunity to help their resume and skill set. Where are they being taken advantage of?
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Anonymous Coward, 16 Apr 2010 @ 6:58pm

Re: Re:
it is meaningless dribble. people who read this blog are from all over the world, rehashing california state law isnt exactly informative.
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Nathan Vegdahl (profile), 17 Apr 2010 @ 6:38am

It seems like a bit of a pickle, to me, this whole unpaid internship thing.

On the one hand, it can really be a great opportunity for the intern, as Nate said.
But on the other hand, abuse is pretty common in the form of slapping the "internship" label onto what is really an entry-level job, where competence is already assumed/required.

Also, I think "intern" and "internship" are no longer well defined (if they ever were), and that makes the ethics of unpaid internships difficult to talk about. For some definitions of internship, I think it's totally fine. For other definitions, it's absolutely not. And for yet other definitions, it becomes a grey area where I feel distinctly uncomfortable about the whole thing, but probably wouldn't raise too much of a fuss.
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Scott, 19 Apr 2010 @ 3:54pm

I'm with the government on this one, though they do need to update their policies.

There are too many companies out there which use and abuse internships, and should face legal actions for their crimes, I have experienced/witnessed a few of them personally. One place offered to pay me, I met at their house (should have been a first red flag) and a couple claimed to have been running a successful marketing business and were seeking to hire a web designer. I decided to begin working for them, it was all work at home and I contacted them by phone/chat (2nd red flag), long story short about 3 weeks went by and I inquired about receiving my paycheck and they immediately cut off communication, I know I was foolish for not obtaining a signed contract or work agreement but that is one example of how a "Company" can screw you over.

Some further examples from some friends of mine also in the graphic/creative field is that they were offered an unpaid internship in a group of about 10 or so other people with the promise of obtaining valuable experience and a full time job to the most qualified of the interns (all verbal nothing in writing), the internship initially was intended to last for 3 months, a friend of mine ended up foolishly agreeing to stay for 6 months, during this time all the interns were doing actual work that the company used for profit. Of course they slowly let down one potential candidate at a time before ultimately letting all of them go without paying anyone a cent. They preyed on people fresh out of college with no real world experience to see the traps laid out for them. Eventually this company did this unpaid tactic to all it's actual paid employees and kept promising to pay them as soon as they could, they ended up not paying any of their 200 employees for 4 months and owed $2 million in unpaid wages and were finally turned in and shut down. I could go on and on with these examples, these people are sick and need to be thrown in jail or fined.

What happens if there is an undocumented internship for a dangerous job where someone ends up getting severely injured or killed such as a steel mill or construction company. The "Company" would just claim that they had nothing to do with anything and have no clue who the victim was and would probably get away with the crime, there's something to think about.
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Bodasactra, 9 Nov 2010 @ 1:43am

The problem is rampant abuse in the contract services like design and graphics where work is on a project basis. To many want free websites and think letting students build them is compensation in experience gained, Thats a lost job to a pro and it drives rates down. Now on Craigslist thousands of mom an pops want interns so as to avoid a few hundred in design cost. Tell me how this is good for anyone? It undermines an entire industry. Its a crime and it should stay one. Anyone can say working for experience is pay until thats the pay they get. Go to work tomorrow and see 20 free workers doing your job and lets see how you feel about interns. If your an owner you love this saver if your a worker your screwed. We are actually talking about working for free now? Its not like labor is running away with fair deals as it is. When is it enough?
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