Employers Need Not Fear Properly-Designed Internship Programs

Once upon a time, part of a young man or woman's rite of passage into adulthood was a summer internship. In more recent times, such internships have sometimes become a stepping stone to something else—a lawsuit claiming that the erstwhile intern was really an employee who should have been paid at least the Fair Labor Standards Act (FLSA) minimum wage and, maybe, overtime, too. As a result, some employers have been feeling skittish about offering students unpaid internships.

The law in this area is in a state of flux--an appeals court heard oral argument in two long-running, highly publicized cases this past winter and may issue a decision soon--and one of the pending lawsuits may well make its way to the U.S. Supreme Court someday. For now, this article will attempt to explain the two sides of the issue so that employers can make informed decisions about whether or not to offer unpaid internships in their workplaces. As the reader will see, there is no reason why unpaid internships need become a relic of the past.

The Basics

With some exceptions not relevant here, section 6 of the FLSA (29 U.S.C. § 206) requires that each non-exempt employee who is engaged in commerce or in the production of goods for commerce, or who is employed in an enterprise engaged in commerce or in the production of goods for commerce, be paid at least the minimum wage for every hour worked. This would appear to foreclose the possibility of non-exempt employees working for free, even when doing so would be to the workers' benefit, and even if they want to, since the Supreme Court has held that a worker may not waive his or her rights under the FLSA (Brooklyn Savings Bank v. O'Neil, 324 U.S. 697 (1945)). As the Supreme Court explained in Brooklyn Savings Bank, while the FLSA protects a worker's private right to compensation, it also protects the public interest by preventing workers in general from being exploited. Thus, even when an individual worker says that he or she is willing to waive the right to compensation, courts generally won't permit such a waiver because of the potential harm to the public at large and because is difficult to determine whether an employee's waiver is truly voluntary.

Nevertheless, not all unpaid work is prohibited. The U.S. Department of Labor (DOL) has acknowledged that the FLSA applies only if an employee-employer relationship exists (see, e.g., Wage-Hour Opinion Letter No. FLSA2005-6NA dated August 26, 2005, citing Wage-Hour Opinion Letter dated July 18, 1996). Determining whether such a relationship exists can be complex and depends upon the economic realities of the whole activity, as disclosed by all the surrounding circumstances. Generally speaking, however, the U.S. Supreme Court has made clear that the FLSA does not cover an individual who "without promise or expectation of compensation, but solely for his personal purpose or pleasure, worked in activities carried on by other persons either for their pleasure or profit" (Tony and Susan Alamo Foundation v. Sec'y of Labor, 471 U.S. 290, 295 (1985); Walling v. Portland Terminal Co., 330 U.S. 148, 152 (1947)).

True interns are not "employees"

Based on the foregoing principles, DOL Wage and Hour Division (WHD) opinion letters have set forth certain circumstances under which a summer intern will be considered a trainee and not an employee entitled to compensation. Typically, a true intern is a student hired through a school program. DOL has stated that it will not consider students to be employees when they are involved in education or training programs that are "designed to provide students with professional experience in the furtherance of their education and training and are academically oriented for their benefit" (Wage-Hour Opinion Letter, Jan. 28, 1988). This would apply, DOL has stated, to students working through an internship program who gain practical work experience, benefit from increased job marketability and are substantially supervised. Similarly, DOL found, a program run by a university in which students worked without pay for a for-profit company to receive on-the-job experience did not create an employee/employer relationship. In a Wage-Hour opinion Letter dated May 10, 1983, DOL opined that students who received college credits for performing an "internship ... which involves the students in real-life situations and provides the students with educational experiences unobtainable in a classroom setting" were not considered to be employees.

The common denominator among trainees who were not entitled to compensation was that the purpose of their internships was not to perform productive work. Among other things that DOL considered were the facts that:

the interns were actually receiving training, they were not displacing regular employees, they worked under close supervision, and they did not provide immediate advantage to the employer; to the contrary, they may...