For growing businesses, it’s a fact of life that work is long and money is short, so at one time or another your company has probably considered bringing in an unpaid intern to help out. But with unpaid internships currently under the U.S. Department of Labor’s (“USDOL”) microscope, companies everywhere have been understandably wary of violating state and federal wage laws by using free labor. Well, fortunately for the business community, the U.S. Court of Appeals for the Second Circuit feels your pain and is here to help.
The Second Circuit’s Decisions
Recently, the U.S. Court of Appeals for the Second Circuit seemingly made it easier for employers to establish lawful unpaid internship programs. In the decisions at issue (Glatt v. Fox Searchlight Pictures and Wang v. The Hearst Corporation), the plaintiffs were unpaid interns at major media companies and sued their employers for unpaid minimum wage and overtime payments. But the Court ruled that the interns were not entitled to wages because they were not their employer’s “employees.” And in a stroke of good fortune for employers, the decisions seem to offer up a roadmap for creating lawful unpaid internship programs.
The Glatt and Wang decisions held that in unpaid internship cases, courts must determine whether the intern benefits more from the parties’ relationship than the employer does. If so, the intern will likely not be considered an “employee” under the Fair Labor Standards Act (“FLSA”) and thus need not be paid wages. As one would expect, this is a wishy-washy inquiry that will likely examine what the intern is doing on a daily basis. If the intern is getting coffee and making copies, an employer could be in trouble because the intern is not benefitting from the relationship. But if the intern is working with and being trained by a “mentor” on a valuable project, the employer is likely in safer territory because the intern is learning a skill or trade.
The Unpaid Internship Roadmap
Critically for employers, the Court devised a roadmap of sorts for employers, explaining that an intern will likely not be considered an “employee” if:
(a) the intern understands that she is not entitled to compensation for her internship;
(b) the employer provides training to the intern similar to the training found in an educational environment;
(c) the internship provides the intern with regular learning opportunities and training;
(d) the intern’s work complements, rather than displaces, the work of paid employees; and
(e) the intern understands she is not automatically entitled to a paid position upon the conclusion of the internship program.
Importantly, the Court further held that an intern would likely not be considered an employee if the intern receives course credit for her internship. And with the Atlanta area being home to several major institutions of higher learning, tech companies may want to consider partnering with a local university to set up an internship exchange program.
The Continuing Need for Caution (or: Call Your Lawyer on This One)
The bottom line for tech employers here is that unpaid internship programs now seem to come with less legal risk, particularly if that internship can be paired with academic credit, so long as employers closely follow the Court’s “roadmap.” But the FLSA is still a legal minefield, and unfortunately the USDOL is prosecuting cases at breakneck speed, so if a tech employer decides to bring on unpaid interns, it may be wise to do so with the assistance of an employment attorney.
Cary Burke is a labor and employment attorney with Dentons US LLP, where he represents and advises employers with regards to their state and federal legal obligations. Mr. Burke and the Dentons Labor and Employment Group also advise employers regarding the enforceability of restrictive covenants, as well as the protection of trade secrets and confidential information. We are available to discuss any employment or labor related issues you may have and are ready to assist.