As summer approaches, many companies are beginning to hire students to work as unpaid interns.  While unpaid internships are a time-honored tradition, they are almost always illegal in the for-profit world.  Typically, the so-called “intern” is actually an employee who must be paid minimum wage and, if applicable, overtime.  Depending on state law, Workers’ Compensation and Unemployment might also apply to these individuals.  Recent years have seen a dramatic increase in enforcement surrounding this issue, and employers can no longer assume their unpaid internships will go unchallenged.  Like with most other employment laws, it does not matter if the individual agrees to an arrangement that is not permitted by law.  “The intern agreed to work unpaid” and “everyone in my industry does it” will not defeat a lawsuit or Department of Labor audit.

Many employers are under the mistaken impression that if the intern receives academic credit, there is no need to pay the intern.  This is not true.  Although some states require academic credit in order for the intern to be unpaid, this is never the sole factor.

According to the U.S. Department of Labor’s 6-part test, for-profit companies must pay interns at least minimum wage, unless all of the following criteria are met:

  1. The intern must receive training and the training  is similar to what would be given in a vocational school or academic educational instruction;
  2. The training is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under their close observation;
  4. The employer derives no immediate advantage from the activities of the intern, and on occasion the employer’s operations may actually be impeded;
  5.  The intern is not necessarily entitled to a job at the conclusion of the training period; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in training.

Some state laws are more stringent.  For example, employers in New York State must ensure they comply with an 11-part test in order to hire an unpaid intern.  (Also of interest to New York employers, the New York City Council just amended the New York City Human Rights Law to allow interns, regardless of whether or not they are paid, to sue for discrimination or harassment, just like a regular employee.)

The bottom line is that the intern should not be helpful to the employer.  If the intern spends the day making photocopies, he or she is not there to learn.  To be unpaid, the internship should be hands-on training — a true educational experience, not an entry-level clerical job.

Even non-profit organizations can face penalties for improper use of unpaid interns.  Unpaid internships at non-profits are generally allowed, but the intern cannot displace regular employees and there must be no uncertainty that the intern will not be paid.  Do not offer the intern any form of compensation, such as a stipend or employee discount, as this may trigger other obligations.

Employers should be wary about hiring unpaid interns.  In this era of enforcement, employers must question even their longstanding practices and reassess their legality.  Our team of labor and employment attorneys can assist you in reviewing these issues.