Unpaid interns: surprisingly, not actual slaves

June 28, 2022

It's summer, and for many businesses, that means... interns!

Interns can be great additions to your team. Fresh ideas, fresh chances to articulate and reexamine your priorities, goals, and procedures, and yes... a bit of free labor from folks who are eager to start their careers, learn a bunch, and slap some ink on their resumes.

But here in the good ol' U.S. of A., there are both federal and state-level rules that protect interns from exploitation and that regulate what they can and can't do for you. Break those rules, and you could be on the hook for unpaid wages, unpaid overtime, employment taxes, discrimination and harassment suits, and more.

For many small businesses, putting an internship agreement in place and getting some basic guidance on how to run your internship program doesn't cost much and is extremely valuable.

Wage and Overtime: The "Primary Beneficiary" Test

For small (for profit) businesses, the first question is: who's the primary beneficiary of the arrangement? The intern or the employer? If it's the employer, then federal minimum wage and overtime law apply to the arrangement. If it's the intern, then those rules don't apply.

Since we're dealing with employment law, that's way too simple. So both the Department of Labor and the Federal Courts of Appeal had to break that down into non-exhaustive multi-factor analyses that are "consistent with a totality-of-the-circumstances approach".

Skip this paragraph if you don't want to read the words of a whining lawyer: These non-exhaustive, multi-factor, facts-and-circumstances analyses are one of my least-favorite themes in American law. Courts and the Department of Labor deploy these complex schemes to determine important employment law questions -- they use a similar approach when classifying employees vs contractors -- and that bugs me. These are rubrics of analysis, not laws. And I suspect that by being complicated, yielding hazy results, and virtually forcing some questions into court instead of allowing parties to plan around fixed default rules, these abstract doctrines impose silent taxes on employers (in legal fees and wasted time) and interns (in fewer internship opportunities). Ok, I'll hop off the soap box now.

As they apply to employers here in Florida (the 11th Circuit), those factors come from a case called Glatt v. Fox Searchlight Pictures, Inc., and are listed below. No one factor is dispositive and every factor need not point in the same direction for a court to conclude that an intern is (or is not) an employee. And, again... the seven factors aren't even exhaustive. But a court here will look primarily to these factors to see if your interns qualify for exemption from the wage and overtime laws that apply to regular employees.

  1. Does the intern clearly understand that there is no expectation of compensation?
  2. Will the employer provide training that would be similar to the training an individual would receive in an educational environment?
  3. Is the internship tied to/related to the intern's formal education program?
  4. Is the internship friendly to the student status of the intern -- such as by corresponding to the academic calendar?
  5. Does the internship end when the beneficial learning for the intern is complete?
  6. Does the intern's work compliment (rather than displace) the work of paid employees?
  7. Do both the employer and the intern understand that the internship has no promise of leading to a paid job at the conclusion of the internship?

Other Important Issues

Several other labor laws apply to interns besides the basic question of whether they need to be paid. For instance: interns can be particularly susceptible to harassment and discrimination. Interns may also get the impression that they're not subject to all of a company's policies, which can lead to all kinds of problems if they're not disabused of this notion. And for interns under the age of 18, both state and federal child labor laws can apply.

The Bottom Line

Internship programs can be one of the most fun and productive elements of your company's summer. But they can cause major problems for you and your company if you don't keep an eye on the relevant laws. If you have any questions about how to run your internship program in compliance with the relevant employment laws, feel free to reach out to us.