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Summer is quickly approaching, and so is the time for summer internship programs that college students rely on to gain valuable professional experience. Employers may want to offer those internships without compensation, but is it legal? Here are some things to consider.
When developing an unpaid internship program and related policies, employers should ensure they're in compliance with federal, state and local laws that govern whether their program participants truly are interns, said Camille Olson, an attorney with Seyfarth Shaw in Chicago, Los Angeles and San Francisco. Interns may be entitled to various benefits or guarantees under local laws regardless of their status as a paid or unpaid intern. For example, all interns are protected from workplace harassment and discrimination under the New York State Human Rights Law.
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Employers would be well-served to focus recruiting efforts for unpaid internship programs on individuals who will receive a demonstrable training or educational benefit from the internship, according to Kristy Offitt, an attorney with Ogletree Deakins in Atlanta.
However, employers should strongly consider paying interns minimum wage and limiting their hours, she noted.
Olson said many employers are examining their internship programs and determining that they do not meet the applicable legal tests for unpaid internships and are therefore converting those programs into paid internships.
"It's important to note that those interns must be paid minimum wage under the same standards as an employee would be," she said.
The U.S. Department of Labor (DOL) has a six-factor test that requires the following criteria to be met for an unpaid internship:
"The goal … is to ensure that companies are not getting around minimum wage and other employee protection laws by calling workers 'interns,' when the work and conditions under which the work is being performed is no different than that of actual employees," Olson said.
The DOL's test, however, has been criticized as being too rigid.
"One criticism of the six-factor test is that it is outdated and no longer reflects the realities of the 21st-century workplace," Offitt noted.
For example, she said, it's highly unlikely that companies would take on the risk, costs and detriments of an internship program without deriving any benefit—so it's difficult to meet the fourth prong of the test.
That's why the 2nd and 11th U.S. circuit courts of appeals have observed a "primary beneficiary" test. Under this test, a company can gain some benefit from an intern, as long as the intern remains the primary beneficiary of the program, Offitt explained.
This test evaluates a set of flexible, nonexhaustive factors, such as whether:
"This test is more employer-friendly than the DOL test, and places more of a focus on the extent to which the internship program is tied to an academic pursuit," Olson said.
She noted, however, that the DOL's test is still used in most states, other than those in the 2nd and 11th circuits. Federal district courts in Connecticut, New York and Vermont are in the 2nd Circuit, and district courts in Alabama, Florida and Georgia are in the 11th Circuit.
Federal district court judges in California and Illinois have also adopted the primary beneficiary test, and these cases are currently on appeal to the 9th and 7th circuits. "Should those appeals courts affirm the lower court rulings, the primary beneficiary test would replace the DOL six-factor test in states in those circuits as well," Olson said.
Tips for Employers
Employers should consider paying interns the minimum wage, limiting their work hours and complying with all applicable employment laws.
If employers still want to proceed with an unpaid internship program, they should make sure it has a strong educational component.
"The DOL's Wage and Hour Division appears to equate the training component of an unpaid internship with the training that an intern would receive in an educational environment," Offitt said. "As such, the unpaid internship should include an educational component, which can be best-established where it is coordinated with or approved by a school for academic credit."
Merely being associated with a school or providing college credit, however, doesn't make an unpaid internship legally sound.
"A program that would fail the test on all other factors will not be permissible just because it provides course credit," Olson said.
Offitt suggested that employers consider the following steps if they decide to make their internship program unpaid:
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