Internships and the Law

The issue of unpaid internships is a challenging aspect of business administration. In theory, internships provide a good opportunity for new job entrants. In practice, internships can land a company in legal trouble. Here is the key thing to remember: Under the law, your company cannot be the “primary beneficiary” of the relationship.

Legal principles behind unpaid internships in the USA date to 1947 when the Supreme Court articulated six rules employers must follow. The federal law applicable to internships is the Fair Labor Standards Act (FLSA) of 1938.

Do you see the problem? The laws were written during the Roosevelt and Truman Administrations. The FLSA has been amended several times across the decades, but we still see areas where the law is not harmonized with the market. Internship law is one of those areas.

The world has changed rapidly, but our internship laws have evolved slowly. This has proven problematic. Government has largely left the company/intern relationship to the market, which has resulted in exploited interns and lawsuits.

Today’s courts look to the following guidelines set forth by the Department of Labor, based upon Supreme Court precedent, to establish whether the company is the primary beneficiary, thus violating federal law:

The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship. (Source: US Dept. of Labor, 2019).

Businesses hiring unpaid interns primarily to save money would likely be in violation of guidelines #2, #3, and #4.

If your company is sued by a former intern, his/her lawyer will ask your HR Manager during deposition: “Was your primary motive to save money?” If the HR manager says “yes”, your company will likely lose that lawsuit.

Courts will look at the facts of each case and weigh the factors differently. The legal issue isn’t whether your company can benefit from the use of interns. The issue is whether your company is calling an employee an intern (to avoid paying wages).

Damages to a company from a successful employment claim may include double wages for the former intern, plus attorney’s fees. Inevitably, tax consequences and bad publicity will follow the verdict.

If you’re a business owner thinking about “bringing on interns” to save labor costs, you should think differently. Internships are not about you. Nor are they about your company, customers or profitability. Internships are about students. Your primary motive should be helping students. An ancillary benefit to your company is fine, but benefiting the company cannot be your primary motive.

If using internships as part of your business strategy, be sure to have a policy drafted by a business lawyer, who tailors the policy to Florida court decisions on the topic. Internships are an area where not knowing the law can cause a lot of problems.

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