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When Is An Unpaid Internship Illegal? [Infographic]

Unpaid Internship Infographic

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Are unpaid interns really just unpaid employees, workers who are getting ripped off? While this is a question ultimately answered by particular courts and particular judges, the Department of Labor (DOL) has tried to clarify the issue, outlining a six-step test to determine which workers can really go uncompensated and which workers qualify as “employees,” entitled to all the benefits of the Fair Labor Standards Act.

We’ll cover this six-step test in detail here, and then continue to discuss a recent court decision that actually questioned the Department of Labor’s guidelines as “too rigid.”

How Do We Define A (Legal) Unpaid Internship?

The DOL’s thinking on this subject is rooted in two long-standing assumptions of US employment law:

  • “Employment” should be interpreted broadly, so that most workers are considered “employees” of the companies they work for, and thus entitled to labor protections. This broad definition of “employment” is expressed in the Fair Labor Standards Act with the language “to suffer or permit to work.”
  • But according to the Supreme Court, this broad definition of “employment” can’t be so broad as to include workers who labor primarily for their own interests, rather than the interests of an employer.

That Supreme Court opinion, which says that who benefits most from a working relationship is key, opens the door for some legitimate, albeit unpaid, internships at “for-profit” private sector companies.

Interns work, according to the Labor Department, primarily to gain experience and knowledge, not to help their employers make money. Legitimate internships are structured to benefit interns more than companies.

Who Benefits More: Intern Or Employer?

In a set of guidelines issued on January 29, 2010, the Department of Labor outlined the following six criteria, which must be met for an unpaid internship to be legal under the Fair Labor Standards Act:

  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
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship

The Department of Labor began cracking down on unpaid intership programs around 2009, after some employers realized that, with job opportunities scarce, younger workers could be made to work in exchange for “experience,” rather than pay. Government officials in California and Oregon started investigating internship programs, too, finding that many were in violation of state labor laws. But effecting industry-wide change was difficult, the New York Times reported in 2010, because interns were usually too afraid of being black-listed within specific industries for speaking out.

With its new guidelines in place, the DOL felt that its position on unpaid internships was clear: interns must learn from their experience, and an internship should be designed to help interns gain valuable work skills. This emphasis on education was so important, that the DOL said an employer’s business operations might actually be hurt by an intern’s lack of experience, not helped by their labor. In addition, interns can’t be used to replace real employees.

Fox Interns Lose Battle

Recent developments out of New York, however, have suggested that at least some courts believe the Labor Department’s test is too strict. In a 2015 case, filed by two interns against the movie production company Fox Searchlight, a federal appeals court judge suggested a broader set of considerations, one that significantly expands on the second step offered up by the Department of Labor.

While his opinion echoed several of the criteria presented by the Labor Department in 2010, 2nd Circuit Court of Appeals judge John Walker put more stock in the “primary beneficiary test,” which tries to figure out who benefits most from the working relationship: intern or employer?

The case was started in 2011 by Alex Footman and Eric Glatt, who worked as unpaid interns on the Fox Searchlight movie Black Swan. In their lawsuit, Footman and Glatt claimed Fox’s unpaid internship program was in violation of both minimum wage and overtime laws, according to the Hollywood Reporter.

In a lower-court decision, the Honorable William H. Pauley III, a federal judge for the US District Court for the Southern District of New York, said that Footman and Glatt were in fact “employees” of Fox Searchlight. They “worked as paid employees work,” Pauley wrote, “providing an advantage to their employer and perform[ing] low-level tasks not requiring specialized training.” Pauley even granted the case class certification, allowing it to grow.

But less than one month later, after Fox Searchlight had appealed Pauley’s decision, the 2nd Circuit Court of Appeals vacated the lower court’s judgment. The question, judge John Walker said, was “whether the intern or the employer is the primary beneficiary of the relationship.” Pauley’s opinion, Walker continued, relied too heavily on the Department of Labor’s six-step guideline, which the Judge called “too rigid.”

Is Focus On Details Threat To Class Actions?

Beyond the Labor Department’s six criteria, Walker wrote, courts should consider whether or not:

  • an internship dovetails with a worker’s academic coursework
  • an intern gets academic credits for completing the internship
  • the internship works around an intern’s academic calendar, making room for course requirements

While the thrust of Walker’s decision remains in line with the Labor Department’s thinking, since both are focused mainly on the educational benefits of an internship, you’ll notice that the judge stresses concrete details over more abstract generalizations. It’s not just whether or not the skills learned during an internship are “similar” to those gained through academic coursework, but whether or not the internship itself is actually equivalent to academic coursework, gaining an intern credits and structured to fit around an intern’s classes.

This focus on detail, in judge Walker’s opinion, makes defining a legitimate unpaid internship “highly individualized.” That could be a problem, if Walker’s decision is taken up by other courts, for interns who hope to file class actions. In a class action, plaintiffs have to show that they adequately represent other employees. How that would be possible is hard to imagine if each intern’s situation has to be scrutinized in detail. But some legal experts think that where unpaid internships are concerned, class action is the only way to go. Filing individual lawsuits, on the other hand, isn’t always feasible, since the back wages that could be won may be far overshadowed by the cost of litigation.

How Many Unpaid Interns Are There?

While no one keeps an accurate record of unpaid internships, recent studies have shown that the practice is growing rapidly. In 1992, researchers at Northwestern University found that 17% of graduating seniors had accepted internships without pay. By 2008, a National Association of Colleges and Employers study found that around 50% of graduating seniors were working as unpaid interns.

The fashion industry is so reliant on unpaid internships that many media outlets, including Time and Fashionista, have questioned whether or not the likes of Vera Wang and Donna Karan could continue to exist if internships were made illegal.

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