The "Unpaid" Intern

Date: September 4, 2014

You are contemplating hiring an “intern” for your organization.  You have budget constraints, but you could sure use the extra help.  What should you do?  Should the intern be classified as an unpaid volunteer or paid employee?  Recently, the US Department of Labor (“DOL”) issued guidelines on how to structure an internship program in compliance with the Fair Labor Standards Act.

The DOL guidelines present a six-factor test for identifying a valid internship:

  1. The internship is similar to training that would be given in an educational environment;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer providing the training derives no immediate advantage from the activities of the intern;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship

Internships allow students to gain valuable skills that bridge the gap between education and employment, and at the same time benefit employers with reduced labor costs.  At issue is whether employers can simply use labels such as “intern” to avoid paying individuals who perform work for the employer.  In one such recent case, Glatt v. Fox Searchlight Pictures, Inc., the Second Circuit applied the DOL's six factor test and found that former “interns” were actually employees who were entitled to be paid for the work that they performed.  

Organizations should be wary of this decision. In Moore et al. v. NBCUniversal Inc., a former Saturday Night Live intern filed a class action lawsuit against NBCUniversal.  Even though Moore is pending, should the court rule in favor of former unpaid interns, it will provide an important indicator of the court's policy interest in the area of internships and willingness to protect a new class of “employees” not previously considered by employers. 

Internships in the public sector and for nonprofit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible.  However, under the FLSA and DOL guidelines, the best practice for compliance for a nonprofit would be to clarify any ambiguity in the terms of the internship opportunity and to create and ensure an unpaid internship program that benefits the intern, rather than answering an immediate need of the organization.

From the outset, an organization should clarify that the intern is a “volunteer” and expects no pay.  Adherence to these guidelines can help eliminate possible liability under the FLSA.  Structuring an internship program to coincide with an academic institution for credit is an additional avenue to avoid liability.  Above all, the employer should consult local law regarding the definition of a “volunteer” versus an “employee” in an effort to proceed with the least ambiguous approach.