Don’t be like Donald Sterling: Pay Your Interns

The Donald Sterling saga continues to teach employers—by way of bad example—important lessons for managing employees. While Sterling’s racist comments and desperate attempts to retain ownership of the L.A. Clippers continue to grab headlines, employers who hire unpaid interns may be facing a lawsuit similar to a less publicized lawsuit filed yesterday against the beleaguered owner (at least for now) and the L.A. Clippers. Two days ago, a former intern for the Los Angeles Clippers filed a proposed wage-and-hour class action in federal court against Donald Sterling and the LA Clippers alleging that Sterling and the Clippers misclassified him and others as unpaid interns in an effort to illegally reduce labor costs. The lawsuit states that “Plaintiff’s unpaid work for defendants is part of a broader trend where employees are being misclassified as unpaid ‘interns’ in an effort by employers to avoid paying wages as required by state laws and FLSA. These programs purport to be training programs, but provide little value to the worker while enriching the employer through the provision of free labor.” The lawsuit goes on to state: “The employer cannot derive any immediate advantage from the intern’s work or require the intern to do the work of regular employees…. Defendants’ failure to pay interns for years runs afoul of basic wage-and-hour laws.”

Are you employing unpaid interns? If so, are you “running afoul of basic wage-and-hour laws”? The Fair Labor Standards Act, or FLSA, broadly defines the word “employ” as including an employer who “suffers or permits” an employee to work. The U.S. Supreme Court has held that if a for-profit, private-sector employer “suffers or permits” an employee—including interns—to work, then the employer must pay minimum wage and overtime to that employee. But a person whose work serves only his or her own interests can qualify as an unpaid intern. This exception is a narrow one. The Department of Labor uses a six factor test for determining whether an internship or training program qualifies as an unpaid internship program under the FLSA.

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;

In other words, if the internship or training program is similar to a classroom setting, then it is more likely educational in nature. Also, if at the conclusion of the training program, the intern receives some sort of certification which could be used at other jobs or put on his resume (aside and apart from just the work experience) then it is likely to meet this element. Employers should consider giving each intern an individualized, tailored internship which focuses on teaching the intern rather than receiving work product from the intern.

2. The internship experience is for the benefit of the intern;

On balance, the internship should not be for the benefit of the employer. If the intern is performing tasks that would otherwise be given to a paid employee, then the internship is likely for the benefit of the employer, not the intern.

3. The intern does not displace regular employees, but works under close supervision of existing staff;

Again interns are not employees, and should not be performing tasks that could be assigned to a paid employee. As my colleague Carrie Hoffman pointed out in a previous post, “In a true training environment, the trainees are not going to be trusted to do much actual work for the company; the actual production would presumably be done by regular employees, who of course are already trained and are paid for the production work.”

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;

This goes hand-in-hand with numbers 2 and 3: the employer should not see an immediate, appreciable benefit from the internship program. In all honesty, if the internship program is for the benefit of the intern, not the employer, then the interests of the employer are secondary to the interests of the intern.

5. The intern is not necessarily entitled to a job at the conclusion of the internship; and

If the employer is promising a job at the conclusion of the internship program (or even if there is a strong likelihood of a job at the conclusion of the internship program), then the internship program is likely for the benefit of the employer, not the intern. In other words, the employer benefits because the internship program is just a training program for a future employee.

6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

An employer MUST make sure that an employee understands that he will not be paid as a result of the internship program. The best practice is that the employer and intern execute a written agreement that states that payment for the services provided is neither intended nor expected.

An employer must satisfy all six elements for the internship program to qualify as an unpaid internship program under the FLSA. If you intend to hire unpaid interns, you should carefully review your internship program and make sure each of the six elements are satisfied. For more information regarding internship programs under the Fair Labor Standards Act, See the United States Department of Labor Fact Sheet # 71: