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Unpaid and Underpaid Internships May Cost Employers

Wednesday, February 26, 2014

A version of this article was originally published in the February 2014 issue of The HR Specialist. It is reprinted here with permission.

Over the past year, unpaid internships have garnered increasing attention. Ross Perlin, the author of “Intern Nation,” estimated in 2011 that more than a million people participate in internships each year in the United States, and that as many as half of internships are unpaid or paid below the minimum wage.1 Misclassifying employees as unpaid interns can result in costly litigation, civil fines, or both for employers.

The Fair Labor Standards Act (FLSA) requires the payment of minimum wage and overtime to covered, non-exempt employees. One exception to the FLSA’s minimum wage and overtime requirements is that a for-profit, private-sector employer may hire individuals for internships or training programs without compensation if the internship is primarily for the interns’ educational benefit. Because the FLSA’s definition of “employ” (“to suffer or permit to work”) is extremely broad, most workers are considered employees and the internship exception is narrowly construed.

The Department of Labor (DOL) lists six criteria that must be met for the internship exception to apply:

  1. the internship, even though it includes actual operation of the facilities of the employer, is similar to training that 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 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 intern understand that the intern is not entitled to wages for the time spent in the internship program.

If all of these factors are met, then the employer and intern do not have an “employment relationship” and therefore, the FLSA’s minimum wage and overtime pay requirements are not applicable.

There has been a growing trend of cases filed by unpaid interns claiming violations of federal and state laws governing minimum wages and overtime. In June 2013, a federal district judge in the Southern District of New York decided that unpaid interns Eric Glatt and Alexander Footman, who worked during the production of the film “Black Swan,” were employees entitled to the protections of the FLSA and the New York Labor Law (NYLL). In Glatt v. Fox Searchlight Pictures Inc., Case. No. 11-06784, Glatt and Footman said they performed tasks usually undertaken by paid employees, such as taking lunch orders, making deliveries, organizing file cabinets, and making photocopies. The court, following the DOL’s criteria, ruled in favor of the interns and found that they did not fall within the FLSA’s unpaid intern exception. Considering the totality of the circumstances, the court concluded that the interns were classified improperly as unpaid interns and were “employees” covered by the FLSA and the NYLL.

In Davenport v. Elite Model Management Corp., Case No. 13-cv-01061, in the United States District Court for the Southern District of New York, a former unpaid intern at Elite brought a collective class action against the company for $50 million in unpaid wages, overtime pay, liquidated damages, interest and attorneys’ fees for unpaid interns. Davenport claimed that Elite violated federal and state wage statutes by intentionally misclassifying employees as interns to avoid paying them wages and overtime. On January 9, 2014, the court granted preliminary approval to a $450,000 settlement between Elite Model Management and its former interns. The settlement will pay more than 100 former interns between $700 and $1,750 each.

Unpaid interns are not the only individuals bringing these types of cases. In December 2012, in Kozik v. Hamilton College, Case No. 6:12-cv-01870-LEK-TWD, Benjamin Kozik, a former athletic intern who was paid a stipend, filed a class action FLSA complaint in the United States District Court for the Northern District of New York. Although he was a paid intern, Kozik claimed that the sum Hamilton College paid him was not enough to meet the minimum wage in light of how many hours he worked. He alleged that Hamilton College failed to pay minimum wage and overtime, willfully misclassified paid interns as exempt from wage and hour laws, and classified them as part-time when they were working long hours each week. The case is still pending, and trial is scheduled for May 2014.

Given the high stakes in wage and hour litigation and the challenge of establishing that individual interns are not employees, employers should tread cautiously before deciding not to pay interns or to pay them minimal amounts. Employers that wish to create an unpaid internship program should formalize the internship relationship in writing, to show that each of the DOL’s six requirements is met. Employees who pay their interns should confirm that their rate of pay complies with minimum wage and overtime requirements under the FLSA and the applicable state law. Employers should consult with counsel to ensure that an internship program is structured carefully to meet the exception to the DOL’s minimum wage and overtime requirements.

Endnote

1 Juliet Lapidos, Working for Nothing, N.Y. Times, Aug. 24, 2013, http://www.nytimes.com/2013/08/25/opinion/sunday/working-for-nothing.html?_r=0http://www.nytimes.com/2013/08/25/opinion/sunday/working-for-nothing.html.

Jamie N. Rotteveel

Written by

Jamie N. Rotteveel
Phone: 215.981.4644
Fax: 215.981.4750
rotteveelj@pepperlaw.com


The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

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