Speakers Discuss Potential Legal Pitfalls Employers Face With Unpaid Internships

With an emphasis on practical strategies to improve productivity and performance, and limit potential liabilities, Bulletin to Management™ concisely analyzes new developments in employment and human resources management.

By Anna Kwidzinski  

MIAMI--Unpaid internships, increasingly the norm in workplaces nationwide, have created a slew of legal implications that employers must address if they are to remain within the bounds of the Fair Labor Standards Act, speakers said at an American Bar Association conference March 23.

Reflecting on recent trends in case law, speakers at the midwinter meeting of the Section of Labor and Employment Law's Employment Rights and Responsibilities Committee said employers have several pragmatic methods to establish an FLSA-compliant internship program.

But, they stressed, companies must be fully aware of legal pitfalls and possible societal repercussions when shaping their internship opportunities.

The panel included Monique G. Doucette of Ogletree, Deakins, Nash, Smoak & Stewart in New Orleans; Scott M. Pollins of Willig, Williams & Davidson in Philadelphia, representing the employee side; and in-house counsel Melinda Burrows of T-Mobile in Bellevue, Wash. Professor Stephen A. Mazurak of the University of Detroit Mercy School of Law in Detroit moderated.

Fact Sheet Offers Guidance

Mazurak said he became interested in the issue about three years ago, during a review of ABA policies. Under the ABA's accreditation rules, if a law school is giving credit for any internship, then the interning law student cannot get paid, he explained.

The University of Detroit law school, he recalled, was examining its clinics when the suggestion arose of placing student interns at for-profit entities. In researching the FLSA and unpaid interns, Mazurak came across the Labor Department's Fact Sheet No. 71, which describes a six-part test for private sector employers and outlines their obligations to unpaid interns under the FLSA.

According to the fact sheet, interns in the for-profit private sector often will be considered employees who must be paid minimum wage and overtime unless the internship experience is for the intern's benefit, and unless the employer that provides the training derives no immediate advantage from the intern's activities, among other factors.

Mazurak said all the potential legal ramifications an employer would have with independent contractors, the company also would have with interns. These ramifications include workers' compensation, personal injury claims, and state law issues, he said.

Doucette suggested that attorneys examine whether the interns are getting hands-on training that they can take to other jobs, or if they are merely shadowing workers at a particular company. Doucette also said attorneys involved in internship litigation should determine whether the interns are getting educational credit, and compare what benefits the company is deriving from the intern to what benefits the intern is actually receiving.

The DOL guidance is in tune with the current recovering economy by encouraging employers to hire more people, not use free agents to do work for which others could be paid, Doucette said.

She recommended that employers mitigate possible legal entanglements by gaining a thorough understanding of DOL Fact Sheet No. 71. Doucette suggested that companies have unpaid interns sign a statement setting terms and acknowledging that they do not expect wages. Although it's a controversial idea, the company could issue a separate set of written guidelines and policies covering an unpaid internship program, she said.

Pollins disagreed, saying unless such a separate policy is carefully drafted, it could turn out to be used as evidence in potential FLSA cases. Additionally, he questioned whether an entity would really want to pay attorneys, both in-house and outside counsel, to draft this policy.

Burrows suggested one practical way to set up an internship program would be to pay interns the minimum wage. Another would be to truly tie the internship program to an educational benefit, she continued.

Burrows said making sure a company is not getting immediate benefits from an unpaid intern is extraordinarily challenging because it is nearly impossible to police. But she added that having a formal agreement, rotating interns through different departments, and not hiring exclusively from among interns are further options for employers to justify an unpaid internship program.

Audience Members Torn

Although at first a good idea, the concept of internships has been perverted, audience member R. Michael Smith of Bowie & Jensen in Towson, Md., commented toward the end of the session. Calling internships a predatory practice, he added that employers know they can take advantage of vulnerable young people, who often are desperate for jobs.

Unless an unpaid internship program has a demonstrable connection with an educational program, DOL should outlaw it, Smith continued. He said the argument that internships are a resume-builder is a false one because the same could be said of any entry-level employment. Paying interns the minimum wage is not asking too much, he said.

Another audience member, management-side attorney Gary B. Eidelman of Saul Ewing in Baltimore, disagreed. Even though an employer benefits from the intern's work, he disputed that unpaid internships are a predatory practice. He said internships provide incredible benefits to students and should be evaluated on a case-by-case basis.

Raising Awareness of Social Issues

The panel members observed that one of the most interesting questions surrounding unpaid internships is the potential societal impacts regarding the haves and the have-nots.

Burrows acknowledged that there is not a lot of awareness of rules pertaining to internships. The larger the company, the more likely there is to be an unpaid intern under the radar, such as an employee's cousin looking to shadow a person, she said.

Doucette pointed out that there are many advantages that come with all internships, which seem to be grouped by the general public with other benefits given to “rich people.” She said this is a wrong view to take.

Pollins noted that some of the more glamorous internships are in expensive places. He added that because the cost of living in cities like New York, Chicago, or Los Angeles is so high, many interns depend on their families for support in the form of food and housing. This situation, according to Pollins, leaves the highly sought internships to an “elite few.”

An audience member said giving too much credit to unpaid internships on job applicants' resumes may make workplaces less diverse because most people who cannot afford to take unpaid internships have been historically underrepresented in higher economic strata of society.

Good Corporate Citizens

Even if the employer designs the internship as an educational program, interns are eager to contribute and managers want to use their skills, an audience member pointed out. He said a situation in which there is no one to supervise the supervisors could lead to a legitimate program transforming into an illegal one.

Burrows said in such a scenario the employer should consider paying the interns minimum wage.

Doucette commented that many employers believe in the concept of being a good corporate citizen and operate internship programs to offer an educational experience. Although Mazurak agreed with the concept in the abstract, he acknowledged that sometimes reality changes the landscape. For example, he said, law firms must be careful about taking on unpaid interns because under the ABA's accreditation rules, if a law school is giving credit for an internship, then the law student interning at the private firm cannot get paid. However, private law firms, unlike nonprofits, are not exempt from the FLSA, Mazurak added.

By Anna Kwidzinski