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No Good Deed Goes Unpunished - Unpaid Internships Can Be Very Costly




by:
Joel Matthew Bagby
Kevin Koronka
Husch Blackwell LLP - Dallas Office

 
December 27, 2013

Previously published on December 20, 2013

The New Year is fast approaching and with it comes droves of college students seeking to trade their upcoming summer break for valuable on-the-job training.  This rite of passage has traditionally afforded prized experience and training for a student or recent grad, while allowing the employer to review the temperament and talents of the student to determine if she would be a cultural fit for possible future employment opportunities, and all-the-while, promoting the employer’s brand and reputation at the collegiate level.  However, a wave of wage-and-hour litigation brought by former unpaid interns has challenged to what extent for-profit employers will continue to have unpaid internships and how the surviving internship programs will be structured.
The potential peril lies in whether employers are required to compensate students who have historically been classified as “unpaid interns.”

Dangers of Misclassification

Generally, employers are required to pay all employees minimum wage and overtime pay pursuant to the Fair Labor Standards Act (FLSA) and state wage and hour laws.  Misclassifying employees as unpaid interns and thereby denying them federal minimum wage and overtime wages can result in costly litigation, civil fines, or both.  For-profit employers that offer unpaid internships must meet the Department of Labor’s (DOL) six-prong test:

  1. The internship must be similar to training which would be given in an educational environment;
  2. It must be for the intern’s benefit;
  3. It cannot displace paid employees;
  4. The employer must derive no immediate benefit from the intern’s activities, and on occasion its operations may actually be impeded;
  5. The intern cannot be promised a job at the conclusion of the internship; and
  6. The employer and the intern understand that the internship is unpaid.

2nd Circuit May Provide Guidance

Despite the DOL’s requirement that employers satisfy all six prongs of the test, courts have applied multiple criteria in assessing whether an internship or employment relationship exists leading to inconsistent outcomes.  Indeed, in the last month, the Second Circuit has granted interlocutory appeals to hear in tandem two leading cases (Hearst Corp. and Fox Entertainment Group, Inc.) that highlight the varying results in applying the six-prong test.

In the Hearst Corp. matter, U.S. District Judge Harold Baer refused to certify a class on state labor law claims determining that genuine issues of fact existed as to whether plaintiffs (unpaid interns) were employees.  The plaintiffs allege that interns “are a crucial labor force” and they worked as many as 55 hours per week without pay.

In contrast, U.S. District Judge William Pauley determined that two unpaid interns who worked on the Fox Searchlight Pictures Inc. movie “Black Swan,” should have been classified as employees and granted conditional certification to interns who worked at Fox’s corporate offices to proceed as a class to pursue related claims.

Because Second Circuit is the first federal appellate court to address both class certification and the substantive question of how courts should apply the DOL six-factor test since the latest rash of intern litigation, its findings should provide influential guidance and will likely serve as an indicator of the volume of imminent litigation related to unpaid internships.

Moving Forward

In light of the recent proliferation of wage-and-hour suits, the safest approach for risk-adverse employers is to pay interns in accordance with the FLSA and relevant state minimum-wage requirements.  At a minimum, employers should closely scrutinize and monitor their internship programs in order to adhere to the DOL six-prong test and minimize their legal exposure.  The attorneys in Husch Blackwell’s Labor & Employment Group have the expertise to assist your company in making a determination regarding how to structure its internship programs.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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Author
 
Joel Matthew Bagby
Kevin Koronka
Practice Area
 
Labor & Employment
 
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