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Private Sector Firms Generally Should Pay Interns at Least Minimum Wage, Lawyers Say

Monday, June 2, 2014

May 19 — As summer approaches and colleges shut down for three- and four-month breaks, many students are heading off to internships instead of vacations or traditional summer jobs at beaches and resorts.

Students often gladly accept low-level jobs at businesses and government agencies, hoping their enthusiasm, drive and physical presence will give them an advantage in starting their careers. Many are so eager that they agree to work for no pay. The National Association of Colleges and Employers estimates that between 46 percent and 48 percent of internships are unpaid.

Legal practitioners and career service professionals contacted by Bloomberg BNA generally agreed, however, that failing to pay at least the minimum wage to interns can be problematic. “If you're not really sure if you should pay the student, you should probably pay the student,” Amy Bravo, the assistant dean of career services at the New York Institute of Technology in New York, told Bloomberg BNA May 2.

The Labor Department also has cautioned employers about the risks associated with underpaying interns. “In a job market where competition for top positions is ever increasing, experiential learning and the skills learned through internships can provide an enormous advantage. But the hope for a better ‘someday' should not come at the cost of working without pay today,” Laura Fortman, the deputy administrator for the Labor Department's Wage and Hour Division, said in an April 11 blog post. She said the WHD “is committed to ensuring that when interns are employees, that experience pays.”

Sentiment against unpaid internships seems to be intensifying. In a recent spate of lawsuits, interns who worked without pay have sued several major companies, including Fox Searchlight Pictures, Hearst Corp., NBCUniversal, Conde Nast, Gawker and Viacom.

Labor Department Guidance

The Labor Department has issued guidance on the subject in Fortman's blog post and in Fact Sheet #71, released in April 2010.

These statements explain that unpaid internships in the for-profit private sector are legal under the Fair Labor Standards Act only if six criteria are met. Fortman's blog explains that interns in the nonprofit and government sectors may not have to be paid because the Wage and Hour Division recognizes an exception for people who volunteer their time to nonprofit organizations.

Under the FLSA, the DOL said, an internship can be unpaid if:

  •  the internship is similar to training that would be given in an educational environment;
  •  the experience is for the intern's rather than the employer's benefit;
  •  the intern does not displace regular employees but works under the close supervision of existing staff;
  •  the employer derives no immediate advantage from the intern's activities;
  •  the intern is not necessarily entitled to a job when the internship ends; and
  •  both the employer and the intern understand that the intern is not entitled to wages.

“The skills learned through internships can provide an enormous advantage. But the hope for a better ‘someday' should not come at the cost of working without pay today,” DOL Wage and Hour Division Deputy Administrator Laura Fortman said.

Fortman wrote in her blog that the more productive work an intern performs at a for-profit business, the more likely payment is necessary. The more that an internship at a for-profit organization centers around an academic experience as opposed to the employer's actual operations, the less likely that the intern must be paid.

The fact sheet stated that “if the employer would have hired additional employees or required existing staff to work additional hours had the interns not performed the work, then the interns will be viewed as employees.”

DOL Files Amicus Brief

The Labor Department April 4 filed an amicus brief in support of interns suing Hearst Corp., alleging they should have been paid for their work, which was largely clerical (Wang v. Hearst Corp., 2d Cir., No. 13-04480, amicus brief filed 4/4/14).

A federal district court had agreed with Hearst that the court must examine the totality of circumstances in determining whether the Hearst interns were employees.

In its amicus brief to the appeals court, the DOL argued that a “totality of the circumstances” test would “introduce subjectivity into the analysis and invite inconsistent results.” The department wrote that its six-part test results in “a consistent standard across the country” and ensures “that this very limited trainee exception … is not unduly expanded, particularly in difficult economic times when … the promise of free labor is both tempting and available.”

Pushback From Colleges

The National Employment Law Project also filed an amicus brief in the Hearst case. Cathy Ruckelshaus, NELP's general counsel and program director, told Bloomberg BNA May 7, that “unfortunately,” unpaid internships are “becoming a more common occurrence.” She said, “It's very difficult to take those [unpaid] positions, especially when you have a lot of educational loans.”

According to Ruckelshaus, “[u]niversities and professional schools are starting to respond to the pressure” mounting against unpaid internships “by tightening the requirements in their programs.”

The New York Institute of Technology in New York is one institution that is pushing back against unpaid internships. NYIT's Bravo said she often tries to convince employers to convert unpaid internships to paid internships. In some cases “we are choosing not to promote this internship” because it does not pay, Bravo said.

When an employer tries to post an unpaid internship at NYIT, the career services staff examines the job title and job description. If it thinks a job listed as unpaid should be paid, Bravo said she will “reach out with a phone call or an email.” She said, “I offer to help” by educating the employer about the ingredients of a good intern program.

“If you're not really sure if you should pay the student, you should probably pay the student,” said Amy Bravo, assistant dean of career services at the New York Institute of Technology.

Bravo urges the employer to consider paying minimum wage or the going rate for that type of job “if they want to remain competitive,” she said. “Students that are in paid internships generally take it more seriously because they think the employer takes it more seriously.” Many employers don't realize how little it would cost them to pay their interns, Bravo said. “Eight dollars per hour for 10 hours per week for 10 weeks isn't going to break them,” she said.

The career services office also tries to help students recognize when they're being taken advantage of and to visit the students at the job site to observe their working conditions and job duties, Bravo said.

Vetting Internships at NYU

New York University also tries to vet the internships offered to its students. “It has to really be an internship for us to list it as an internship,” Trudy Steinfeld, executive director of NYU's Career Development Office in New York, told Bloomberg BNA May 6. Internships should “be done in a thoughtful, reflective, meaningful way,” she said. “If it's not doing that, it's a job.”

Employers that wish to post an internship on NYU's website must click on a statement acknowledging that they have read the DOL's internship guidelines. Steinfeld said NYU has rejected some postings that did not “meet what we consider a reasonable standard.” Indications that an internship may be questionable include an incomplete job description, unspecified start or end dates, and a request for a specific gender of student, she said.

The career office advises students, but ultimately it is the student's choice whether to accept or continue in an internship, according to Steinfeld. She said more than 80 percent of NYU students take a credit-bearing or non-credit-bearing internship at some point during their college career.

An emerging trend is for people with a bachelor's degree to accept paid internships where they work 29 hours per week for $10 per hour with no benefits, Steinfeld said.

Internships “took off” after the recession of 2007 when “people were really looking to get their foot in the door” of a company in hopes of landing a permanent job, she said. Employers “found a very eager community of students and laid-off workers,” Steinfeld said. Now a sort of “market correction” is occurring, with people starting to become wary of internships, according to Steinfeld.

Advantages of Internships

Other colleges, while trying to protect their students from exploitation, see advantages in internships, even if they are unpaid.

“If we were to take the stand that we're not going to allow unpaid internships, it would hurt our international students,” said Michelle Relyea, vice president of student services at Parsons The New School for Design in New York. She told Bloomberg BNA May 8 that Parsons has many foreign students who do not have visas permitting them to work in the U.S., so they are satisfied with receiving academic credit for their work.

In addition, Relyea said, whether an internship is paid tends to depend on the industry. Many museums have unpaid internships through which students get “phenomenal” work experience that helps them get paying jobs in the future, she said.

The fashion industry, where each year 350 to 400 Parsons students do internships, also “knows that students need the experience” and therefore “they don't have to pay students,” Relyea said. “The interns understand that's how to get in” to the industry, she added.

“Internships are necessary,” Relyea said, because “employers aren't going to hire students without any experience. I don't think we're in an era where just a college degree will get you a job.”

Internships also give employers a chance to assess students' potential, she said. Many companies downsized their management trainee programs during the recession, and “what's becoming a trend is employers using an internship almost like a four-month [job] interview,” Relyea said.

NACE Guidelines

Internship programs involving human resources professionals and college career officials who belong to the National Association of Colleges and Employers are expected to follow the guidelines the organization has developed, Edwin Koc, NACE's director of strategic and foundation research, told Bloomberg BNA May 8.

In a July 2011 position statement and a list of best practices, NACE recommended giving interns “real work assignments” related to their college major. It also suggested designating an intern manager to run the intern program, holding orientation sessions for supervisors and interns, inviting staff from college career centers to visit the interns on site and conducting focus groups with the interns.

“Internships have become a bigger deal in the college employment labor market over the last 10 years,” Koc said. Among the classes graduating from 2007 to 2011, 54 percent of students had either an internship or a cooperative job, whether paid or unpaid, he said. That portion grew to 58 percent for the class of 2012 and 62 percent for the class of 2013, NACE's surveys show. A cooperative job usually lasts several months and intersperses a stint of working in a real job with a stint of classroom learning.

Most of the unpaid internships were in government agencies and nonprofit organizations, he said. Even so, between 30 and 32 percent of the internships at for-profit companies are unpaid, Koc said.

NACE's surveys indicate that unpaid interns are more likely than paid interns to perform clerical rather than project-based work. They also show that unpaid interns would be more likely to reject a paid job offer at their place of internship than paid interns would, Koc said.

Empowering College Students

Mikey Franklin, the co-founder of the Fair Pay Campaign, also thinks colleges have a responsibility to their students who participate in internships. Franklin, a former intern, hopes to build the Washington, D.C.,-based campaign, which began in 2013, into a national movement to end unpaid internships.

“Colleges have the power to change the culture on unpaid internships,” Franklin told Bloomberg BNA May 2. “Colleges can stop posting ads for unpaid internships on their job boards. Colleges can stand up and say if you want to hire them, you have to pay them.”

Franklin called unpaid internships “unfair.” He added, “People who can afford to work for free get ahead. People who can't afford to work for free fall behind.”

Even when interns accrue college credit for their work, they should be paid, Franklin said. “College credit is not the same as pay. I cannot pay for groceries with college credit.”

Franklin estimates the Fair Pay Campaign, which he calls “a grassroots organization,” has “just under 10,000 members,” approximately 25 percent of whom are college students. He counts as members people who signed a Fair Pay Campaign petition or signed up on the website. There is no membership fee, but the group requests donations and receives an average donation of $28. The campaign also is seeking grants from foundations.

The campaign aims to give good publicity to employers that pay their interns and bad publicity to those that don't, Franklin said. The Fair Pay Campaign has criticized the White House for not paying its interns.

The campaign also is working with college students who have asked for assistance. “We empower students to pressure college career services offices,” Franklin said. He has worked with students in New York, Los Angeles, the District of Columbia and Chicago. “Unpaid internships are largely in big cities,” he said.

Unpaid internships are most common in the creative industries—such as fashion, film, music, journalism and publishing, Franklin said. Women are 77 percent more likely than men to participate in an unpaid internship, he said. “Women tend to get stuck in unpaid internships. Men are more likely to get promoted to paid internships,” Franklin said.

Franklin added that he plans to start pressuring the DOL to make unpaid interns a higher priority in wage investigations.

Employers, Colleges Becoming More Cautious

Employment lawyers commented to Bloomberg BNA that the recent lawsuits filed by interns are causing both colleges and employers to become more circumspect with respect to internship programs.

“I think colleges” are giving internships “a second look,” Ellen Kearns, co-chair of the wage and hour practice group at Constangy, Brooks & Smith LLP in Boston, said May 6. She advises colleges to ask for a progress report while the student is participating in the internship so they can verify the internship's value.

Employers also are “being more skeptical about internship programs” because “they don't want the lawsuits,” Kearns said. In general, she said, it's probably wise for an employer to pay an intern the minimum wage.

“College credit is not the same as pay. I cannot pay for groceries with college credit,” according to Fair Pay Campaign co-founder Mikey Franklin.

If an intern sues a college under wage and hour law for listing an unpaid internship, the student would have to show the existence of a joint employment situation with the college, Kearns said. That would be unlikely to succeed because colleges usually do not exercise sufficient supervision to qualify as a joint employer, Kearns said, but a student potentially could have a breach of contract case against the college.

Camille Olson, a partner in the Chicago and Los Angeles offices of Seyfarth Shaw LLP, said May 7 that businesses “absolutely” are changing their internship programs in the wake of the lawsuits. She said some companies have abolished their internship programs, and others have decreased the size of the program while paying the remaining interns. Still others have improved training for managers who supervise interns to make the internship experience more meaningful, she said.

In the past two years, plaintiffs' lawyers have enhanced the financial appeal of interns' wage claims by pursuing them as class actions, Olson said. However, she added, “I don't think these cases are manageable as a group claim” because the facts differ greatly from case to case. From a business perspective, Olson said, it probably is not feasible for an employer to litigate a class action internship case.

To contact the reporter on this story: Gayle Cinquegrani in Washington at gcinquegrani@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com

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