Are Unpaid Interns Handy Helpers or a Source of Liability?

22 April 2013 Labor & Employment Law Perspectives Blog

Summer is fast approaching and along with the dog days of pool time, family vacations, and outdoor activities, comes summer break for students. For many companies, this means an influx of potential interns anxious to learn the ins-and-outs of an industry and willing to do so without pay. As we have mentioned in past updates (see here and here), the Department of Labor has been stepping up enforcement efforts and closely scrutinizing the use of non-employee workers, such as independent contractors. However, many employers are not aware that this uptick in audits of employee misclassification extends to unpaid interns. In fact, the DOL has issued a fact sheet specifically addressing the use of unpaid interns.

The DOL applies a six-part test to decide whether a worker is properly classified as an unpaid intern as opposed to an employee. First, the internship must be similar to training the intern would receive from an educational institution. This means that the internship should be structured around a classroom or educational environment. Second, the internship should benefit the intern as opposed to the employer. A red flag is raised in a situation where the employer relies on the intern to do the company’s work. Third, the intern must not displace existing employees. Thus, employers should be careful about bringing in interns on the heels of a layoff, and should not use interns to augment the workforce. Fourth, the employer should not receive any advantage from using the intern and, in fact, a showing that the employer’s operations are sometimes impeded by training the intern is good evidence of a true internship. Fifth, the intern should not be entitled to a job at the end of the internship. This means that using internships as trial periods for employment is risky. Finally, the employer and the intern must understand that the intern is not entitled to wages.

With this test in mind, there are several important practice pointers to follow when using unpaid interns:

  • If you pay your interns a “stipend,” make sure it is minimal, bears no connection to work performed, and is understood to be a stipend and not wages.
  • Do not assign work to an intern that you would assign to a regular employee. Instead, have interns trail employees in order to learn from them and engage them in special projects that are educational in nature.
  • Do not become reliant on the intern as you would an employee. Ask yourself, “would the intern’s absence pose a problem in the workplace?” If the answer is yes, the intern probably qualifies as an employee and should be paid according to applicable state and federal wage laws.
  • Enter into a written agreement with the intern specifying the parameters of the internship, confirming that the internship is unpaid, and documenting any educational experience and educational credits the intern will earn for participating in the internship.
  • Ideally, work with an educational institution to ensure that the internship provides appropriate educational experience and is approved by the institution.

Use of interns should be closely monitored to ensure compliance with the DOL’s test and to help avoid liability for misclassification.

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