• Your New Internship Program is About to Begin, But Are You Violating the FLSA or Other Employment Laws?
  • June 13, 2014 | Author: Lauri E. Cleary
  • Law Firm: Lerch, Early & Brewer, Chartered - Bethesda Office
  • You just hired a bright, local high school or college student to intern at your company this summer. You need not be concerned with child labor laws, because they only apply to employees, and your new addition is an intern—-something entirely different...right? Not necessarily, and if you are mistaken—-if this student is more appropriately classified as an “employee” in the eyes of labor regulators--you may find yourself in violation of applicable wage and hour, wage payment, tax, immigration, worker’s compensation, ERISA, and a host of other state and federal laws. But it gets worse: you may be subject to serious consequences, including intrusive child labor investigations, tax audits, substantial civil fines and penalties as well as burdensome and expensive lawsuits, to name just a few.

    Internships are an increasingly popular way for students to “try out” a particular career and for employers to identify new employees to hire upon graduation. According to the National Association of Colleges & Employers, in 1992 only about 9% of college graduates had completed internships. By 2008, this number had risen to 83%, and the interns ordinarily were not paid.

    In 2011, however, a new poll showed that more than half of college interns are paid, and the trend continues. Likewise, more than half of those who serve as interns later are hired by the businesses for which they intern. Most of those new employees are paid more than new hires who did not intern. In line with these trends, internship programs have been targeted for the enforcement of child labor laws. As the lines between education and employment continue to blur, anyone managing a workplace should be familiar with relevant child labor issues and laws. U.S. employers must comply with the Federal Fair Labor Standards Act (“FLSA”) and corresponding regulations, as well as the numerous similar laws enacted by state and local governments. The FLSA and state and local laws all restrict work hours and the particular tasks and occupations in which minors may engage.

    How Do I Determine Whether My “Intern” is Really an “Employee?”
    The FLSA offers no practical definition of an employee, and the Supreme Court has not spoken. Recent court cases demonstrate that there are no bright lines or rules, despite a six-factor “test” that was used by the U.S. Department of Labor (“DOL”) for more years before it was articulated in a clarification issued in 2010. The DOL’s six criteria for a legal unpaid internship are:

    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 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.

    Although the courts have not yet interpreted the FLSA’s definition of “employee” in this context, recent court cases have distilled a few basic principles with which the DOL criteria above are consistent. The key factors tending to support a court’s finding that an intern or other “trainee” is not an employee require a look at whether:

    • The trainee works for his own benefit to learn a profession or vocation with adequate supervision and instruction from the company;

    • The company does not derive the primary benefit of the work performed by the intern; and,

    • The trainee does not displace paid employees.

    If any of the three factors above is missing, the intern is more likely to be classified as an “employee.” In that case, the FLSA will require the wages to be paid and will impose various restrictions on the employment. The best practice that we recommend is to put your internship program to the test—to both

    In addition to the FLSA, there may be even more stringent laws in the state or locality with which the employment also must comply. A prudent employer will observe the most restrictive of the potentially applicable laws. The State of Maryland is working to assist those employers to comply with the many laws limiting and governing the employment of minors, and has posted on its Department of Labor, Licensing and Regulation’s Division of Labor and Industry (“DLLR”) webpage a helpful Fact Sheet on the Employment of Minors found at http://www.dllr.state.md.us/labor/wages/minorfactsheet.shtml.

    Whether in connection with internship and training programs, employers’ decisions to utilize independent contractors rather than to hire employees, or even with respect to nonprofit employers’ use of volunteer workers, the problem of “employee misclassification” has generated far more federal and state enforcement activity in recent years than ever before. The risk to an employer increases greatly when the misclassified employee is a minor. It is crucial that every employer be aware of and comply with federal, state and local laws each time a new worker is added, and employers should conduct periodic internal audits to insure that their programs are not misclassifying volunteers, trainees, interns or others they do not regard as employees.