Beware the Legal Pitfalls of Managing Unpaid Interns

With many college students and recent graduates trying to start a career, their first step to getting introduced to what their degree can hold for them is working as an intern to learn different roles and to learn how a business operates. The U.S. Department of Labor (DOL) has raised concerns regarding what makes an intern an "employee" or a "trainee". Read this blog post to learn more about the guidelines that pertain to bringing an intern or a "trainee" into the workplace.


A college student or recent graduate is eager to make an impression. So is the early-in-career professional who’s been laid off by another company. You placed them both in an unpaid internship program because you want to give your company a chance to evaluate them as future employees. What could go wrong?

At job sites across the United States, interns not paid or earning less than minimum wage are given all sorts of jobs: answering phones, loading paper in the copiers, managing company social media campaigns.

But, federal guidelines released by the U.S. Department of Labor (DOL) in April 2010 raise concerns that employers might decide to provide fewer internship opportunities. The guidelines, which apply to “for-profit” private-sector employers, define what makes an intern an “employee” as opposed to a “trainee.” If a court or government agency decides that interns’ work qualifies them as employees, the company could face penalties that include owing back pay; taxes not withheld; Social Security; unemployment benefits; interest; attorneys’ fees; plus liquidated damages, defined by federal law as double the unpaid wages.

Six Standards

The DOL’s Wage and Hour Division lists six factors to use in determining whether an intern is a trainee or an employee under the Fair Labor Standards Act (FLSA).

  1. The training, even though it includes actual operation of the facilities of the employer, is similar to what would be given in a vocational school or other educational institution.
  2. The training is for the benefit of the trainees.
  3. The trainees do not displace regular employees, but instead work under their close observation.
  4. The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded.
  5. The trainees are not necessarily entitled to a job at the conclusion of the training period.
  6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.
    If all of the factors listed above are met, then the worker is a “trainee,” an employment relationship does not exist under the FLSA, and the act’s minimum wage and overtime provisions do not apply to the worker.

Federal and state labor departments are cracking down on unpaid internships “due to a concern that paid jobs are being displaced and to increase payroll tax revenues,” says employment lawyer Terence P. McCourt of Greenberg Traurig in Boston.

With so much at stake, it’s a good time for HR professionals to review their companies’ internship policies to ensure that they are in compliance with government requirements.

Legal Exposure

The DOL standards state that most nonexempt individuals “suffered or permitted” to work must be compensated for the services they perform for an employer unless certain conditions are met. In general:

  • The internship program must be similar to training that would be given in an educational environment, such as a college, university or trade school.
  • The intern and the employer must both understand that the intern is not entitled to wages.
  • The company must receive no immediate advantage from the internship and in fact may find its operations disrupted by the training effort.
  • The intern must not take the job of regular employees.

Unpaid Programs on the Rise

Despite the risks, unpaid internships appear to be on the rise. In a May 2010 survey by Internships.com, an online clearinghouse for companies and would-be interns, two-thirds of the more than 300 college and university career center professionals who responded said that overall internship postings on their campuses increased from 2009 to 2010. However, more campuses reported lower numbers of paid internships than those reporting increases.

“Unpaid internships do appear to be on the rise,” says attorney James M. Coleman of the labor and employment law firm Constangy, Brooks & Smith LLP in Fairfax, Va. Whether the rise is in “reaction to the difficult economy and an effort to save on labor costs is not completely clear.”

Companies can protect themselves by having the college intern ask his professor for academic credit for the internship. Employers should coordinate with an intern’s school to determine requirements mandated by the educational institution, experts say.

An internship is more likely to be viewed as training if it provides interns with skills that can be used in multiple settings, as opposed to skills that are specific to one employer’s work environment.

Interns should be “allowed to observe aspects of the employer’s operations, such as job shadowing, without needing to perform services at all times,” McCourt says. He adds that an intern should not supervise regular employees or other interns, and the company should define the arrangement clearly and in writing, specifying that there is no expectation of a job offer at the conclusion of the internship.

HR professionals and lawyers say it may be useful for companies to keep written records of what an intern expects to gain from an unpaid program. Attorney Oscar Michelen of Sandback & Michelen in New York City suggests preserving memos, e-mails and other documentation covering what each intern does, such as attending scheduled training sessions and luncheon meetings with regular employees, and what type of training and supervision will be provided.

SOURCE: Taylor, S. (17 January 2020). "Beware the Legal Pitfalls of Managing Unpaid Interns" (Web Blog Post). Retrieved from https://www.shrm.org/hr-today/news/hr-news/pages/managingunpaidinterns.aspx


Working interviews: How hiring trend can cause compliance issues

The federal government prefers that companies do not bring in applicants for a working interview and without paying them. Continue reading this blog post to learn how this hiring trend can cause compliance issues for companies.


News flash: The feds don’t like it when you bring in “applicants” for a “working interview” – and then refuse to pay them for the work they perform.

The lesson is going to cost a Nashville dental practice $50,000 after a settlement in federal district court.

The practice will pay $50k in back wages and liquidated damages to 10 employees for FLSA minimum wage, overtime and recordkeeping violations.

According to the DOL’s Wage and Hour Division, Smiley Tooth Spa:

  • violated the federal minimum wage requirements by requiring candidates for hire to perform a “working interview” to conclude their application, but failed to pay the individuals for those hours worked
  • failed to pay registered dental assistants and hygienists time-and-a-half for hours worked over 40 in a workweek
  • authorized their accountant to falsify and alter time and payroll records to make it appear that the employer was paying proper overtime for all hours worked, and
  • periodically required employees to attend training during their scheduled lunch breaks without paying them for that time.

THE CARDINAL RULE

Although it’s hard to believe that any employer could think such an approach could fly in this day and age, this case is a good reminder that people who perform duties for the benefit of any organization are, almost universally, entitled to be paid.

Even if they aren’t yet considered an “official” employee, they’re performing the work of one, and must be paid for it.

Some good news: With working interviews, employers don’t necessarily have to pay the position’s advertised salary. The law only says workers must receive at least minimum wage for their work, so companies do have some flexibility.

SOURCE: Cavanaugh, L. (1 March 2019) "Working interviews: How hiring trend can cause compliance issues" (Web Blog Post). Retrieved from http://www.hrmorning.com/working-interviews-how-hiring-trend-can-cause-compliance-issues/