If your company hires unpaid interns, you may be risking serious litigation for violating labor laws.  More and more companies of all sizes – including major ones such as NBC — have found themselves facing suits from their former interns.  In fact, it’s become so common that there is a cottage industry of plaintiff’s attorneys seeking current and former unpaid interns to sue their employers for violating federal and state wage and hours laws.  If your company is not educated about these issues, it’s likely time for you to review your policies and protect your business.

The Fair Labor Standards Act is a federal law that sets out minimum wage and overtime pay standards that govern how employers must pay their employees.  The Federal regulations promulgated under the FLSA carve out a narrow exception to the definition of “employ” that allows employers to bring on “trainees.”  The problem is that the exception is very narrow and is a fact intensive case-by-case determination.  The US Department of Labor has explained that “[i]nternships in the ‘for-profit’ private sector will most often be viewed as employment,” — in a nutshell, this means your interns will typically need to be paid minimum wage plus overtime when applicable.

So if you are going to risk it and bring on unpaid interns, avoid a costly litigation using these steps articulated by the Department of Labor and relied upon by courts:

    1. Make sure the internship is similar to training that would be given in an educational environment.
      This doesn’t mean you have to provide classroom training, but your company should make sure that the internship gives more than on-the-job training that employees receive.  It’s also important that the skills taught are not specific just to your particular company.  Provide fungible skills that are useful throughout the industry.
    2. The internship must be for the benefit of the intern.
      Of course your intern will love putting your company’s name on their resume and will very much want to list you as a job reference.  But as a federal court has explained, “[r]esume listings and job references result from any work relationship, paid or unpaid, and are not the academic or vocational training benefits envisioned by this factor.”  Ensure that the intern is getting skills that will be useful not just at your operation, but anywhere he or she goes.  If your interns are just performing productive work or engaging in the operations of your company (such as doing clerical work or assisting customers), then a court might determine that you “employed” them and will require you to pay.
    3. Have the intern work under close supervision of your existing staff without displacing regular employees.
      The law doesn’t want interns simply to provide free labor.  Ask yourself: if I didn’t have this intern doing the task, would I have to pay someone else to do it instead?  If the answer is “yes,” then make sure your intern is working under the close supervision of your existing staff.  Keep in mind the Department of Labor’s guidance here: “If the employer would have hired additional employees or required existing staff to work additional hours had the interns not performed the work, then the interns will be viewed as employees and entitled to compensation[.]”
    4. Let your interns slow you down.
      This one is a doozy and is one reason that many employers might not want to provide unpaid internships.  The basic idea is that if you’re bringing someone on who provides you an immediate advantage, you should pay them.  If your interns are doing tasks that your paid employees would otherwise do and are not getting in your way, then you might have to pay them.  Instead, let them slow you down; don’t get an immediate advantage from their activities.
    5. Have set start and end dates – this is not a trial period!
      Make a clear start and end date for the internship before your intern ever starts.  The internship should not be a trial period for you to test them out.  If there is an expectation that you will hire them at the end of the internship, then you probably have to pay them.
    6. Make sure that your interns know that they’re in an unpaid internship and are not entitled to wages.
      Courts do not find this factor to be particularly convincing, but it is important nonetheless.
    7. Alternatively, just pay your interns the minimum wage.
      Unpaid internship programs won’t work for every company.  You might have to pay your interns minimum wage and treat them like regular employees.  But if you are going to provide unpaid internships, make sure to follow the law or else you might end up on the wrong side of a huge lawsuit.

Keep in mind that the above guidance is applicable to the Federal standards.  While most states are similar, many states have their own criteria or interpretation of this area of the law and New York is one example.