Sunday, December 05, 2010

Are Unpaid Internships Legal? Probably Not.

College students and young workers often perform unpaid internships with companies in industries they are interested in pursuing for their careers.  Indeed, internships are common in most "white collar" fields, including publishing, fashion, television, film, high technology, advertising, and law.  Unpaid internships can be a "win-win" situation:  the intern benefits by obtaining work experience, networking opportunities, and exposure to different job settings, while the company benefits by identifying promising entry-level employees and obtaining some "cheap labor."  Alas, the "cheap labor" aspect of internships -- which makes many, if not most, internships economically feasible -- probably is illegal.

In general, unpaid internships for private, for-profit employers violate federal and state wage and hour laws, including minimum wage and overtime laws, unemployment insurance and worker's compensation laws, and payroll and income tax laws.  As stated by an official with the U.S. Department of Labor, Wage and Hour Division:  “If you’re a for-profit employer or you want to pursue an internship with a for-profit employer, there aren’t going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law."  Why not?  Because in most cases an unpaid intern is considered an "employee" to which the full panoply of workplace rules applies.  (Internships with government agencies and non-profit charitable organizations are excluded from these rules.)

As the Wage and Hour Division recently explained, an unpaid internship must meet the following six criteria to pass legal muster:

1.  The internship must be "similar to training which would be given in an educational environment";

2.  The internship must be "for the benefit of the intern";

3.  The intern "does not displace regular employees" and "works under close supervision";

4.  The company "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 intern understands that he/she is not entitled to wages for the time spent in the internship.

These are very strict criteria that effectively bar most unpaid internships, which are intended to benefit both the intern and the company; otherwise, why would the company offer the internship in the first place?  Yet the Wage and Hour Division has stated unequivocally that a company may derive "no immediate advantage" from the internship.  The upshot is that if an intern performs any useful work, however simple or menial or clerical in nature, the intern must be treated as an employee, subject to all applicable labor and employment laws.  Failure to comply with these laws can result in liability for back wages, back taxes, and other civil and criminal penalties.