eTrends - Hiring Unpaid Interns Could Be Costly

Recently, three class action lawsuits have accused media and entertainment companies Charlie Rose Inc., Hearst, and Fox Searchlight of misclassifying employees as unpaid interns in an attempt to reduce costs. These lawsuits serve as a reminder that there are few circumstances under which a for-profit employer can employ an unpaid intern and still comply with the requirements of the Fair Labor Standards Act ("FLSA").

Under the FLSA, interns are most often viewed as employees and, therefore, must typically be paid at least minimum wage and overtime compensation. See 29 U.S.C. § 203(e)(1). In order for an intern to qualify as a "trainee" such that the FLSA's minimum wage and overtime provisions are not applicable, interns must meet all of the following six criteria:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which 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 the existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion, its operations may actually be impeded;
  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.

See Walling v. Portland Terminal Co., 330 U.S. 148 (1947); U.S. Department of Labor Wage and Hour Division, Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act; FLSA2004-5NA (May 17, 2004). The first and second criteria, that the internship be similar to training which would be given in an educational environment and that the internship be for the primary benefit of the intern, are key in evaluating whether the internship can be unpaid. Individuals are more likely to be viewed as receiving training if they are learning and utilizing skills that can be used in multiple employment settings and they do not perform the routine work of the business on a regular and recurring basis.

In order to avoid costly misclassification issues, companies considering hiring summer interns should be aware of these federal guidelines, as well as any applicable state standards.

Please contact Susan Parrott with any questions.

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Smith Anderson publishes eTrends periodically as a service to clients and friends. The purpose of this eTrends is to provide general information about a significant legal development in the field of employment law. Readers should be aware that the facts may vary from one situation to another, so the conclusions stated herein may not be applicable to the reader’s particular circumstances.

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©Copyright Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P. 2012


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