Employer Internship Programs—Legal Success in Your Recruitment Efforts

By:  Melanie M. Dunajeski

Thoughtfully constructed internship programs can give companies the chance to attract the best and brightest talent coming out of colleges and universities, while at the same time giving both the company and the intern the chance to have an extended “try-out” period. Without doubt, both parties to an internship stand to reap significant benefits, whether or not that internship is paid.  Companies choosing to offer an unpaid internship, however, must use care in creating and administering an internship program to avoid wage and hour violations.

Back in January of 2018, I wrote a blog on the new unpaid internship rules that were adopted by the Department of Labor. In a nutshell, the DOL issued a new guidance that abandoned the strict six-part Obama-era test for determining whether an intern must be paid as an employee under the Fair Labor Standards Act (FLSA) and adopted a less-restrictive and more employer friendly “primary beneficiary” test.

Why is this important? The FLSA is the federal statute that mandates  all “employees” are entitled to minimum wage and to overtime pay—with significant and sometimes crippling penalties to employers who fail to pay wages and overtime to a person or class of persons who should be classified as “employees” but are not. Under the 2010 test, employers had to meet every requirement of six-part test to show that a person was properly classified as an intern—and thus exempt from the FLSA wage and overtime requirements. The hardest part to satisfy was also the most controversial– that “[t]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.”

The DOL abandoned the strict six-part test and adopted in its place a new, more flexible test. Under the new test, the DOL provides a non-exhaustive list of seven factors the DOL may take into consideration to determine the “economic realities” of a company’s classification of a person as an intern to determine whether the employer or the intern is the “primary beneficiary” of the internship arrangement.  The new seven factors include examination of:

(1) whether both the employer and the intern clearly understand there is no expectation of compensation;

(2)  whether the internship provides training similar to that provided in an educational environment;

(3)  the extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit;

(4)  whether the internship accommodates the intern’s academic commitments by corresponding to the academic calendar;

(5) the extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning;

(6) 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; and

(7) 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.

The new test provides more flexibility in crafting an unpaid internship program that is legally compliant, but every internship situation need to be addressed separately—and there are no clear right or wrong answers that will fit in every case.  The key is to strike a balance between providing the intern with meaningful opportunities to reap non-monetary learning and experiential benefits and using the intern simply to produce work for the employer. The old rules essentially forbade the intern from participating in productive work—robbing the intern of the opportunity to participate in a meaningful way and in many respects turning the intern into a mere spectator. The new rules pave the way for a more immersive experience that gives the intern a meaningful chance to learn and the employer a better opportunity to observe the capabilities of the intern.

If you do choose to offer unpaid internships, you must rigorously review and update all of the program related communications and documentation. Do you have a written description of the internship, including what the intern can expect to do during their time with the company? Does that written description meet the seven-factor test? Do you have policies which need to be reviewed?  If you advertise or utilize social media to attract interns, make sure that these communications also reflect expectations and opportunities that result under the seven-factor test with the “primary beneficiary” of the relationship being the intern. Using the language contained in the DOL factors may help to solidify that this is a relationship that primarily benefits the intern.  Both the intern and the company should sign a written agreement that acknowledges that the internship is an unpaid experience. Lastly, the company should monitor the internship experience to make sure that what was offered and made part of the “unpaid” analysis is actually the experience that the intern is given. In the end, however, the only way to be certain that you will not face a wage and hour claim with respect to an internship is to pay that intern at least the minimum wage together with any applicable overtime pay.

It is important to consider that even though it is now easier to provide unpaid internships under the FLSA , commentators suggest their use may artificially limit employers’ access to the pool of qualified and desirable candidates.  Many students cannot afford to work for free, even where they stand to gain a unique learning experience. Thus, you may have limited your pool of potential interns to only those who can afford to work for free. Worse yet, your competition may be offering the same or similar opportunities for pay. If the goal of the internship is to find the best and the brightest to lure them to join your company, then the unpaid internship route may not be an effective strategy.

How can an employer make an unpaid internship more attractive to top students?  Interns place a high value on the opportunity to do meaningful work, to participate in challenging projects, to have access to feedback and adequate direction, and to be made a part of the company day to day life.  An attractive or unique project, presented thoughtfully, may sway your target candidate in your direction—but you must put in the effort to craft an experience that the candidate is willing to forego other opportunities to take. With careful planning, your unpaid internship can be both legally compliant and an effective tool to attract the talent that you want.

Finally, in this new era of “#metoo”, make sure that your policies and procedures adequately address the realities of bringing interns into your workplace, give copies of the policies to the interns, and provide interns with adequate training and access to means to report any sexual or other forms of illegal harassment.

To download a copy of the “Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act” (updated January 2018) , go to https://www.dol.gov/whd/regs/compliance/whdfs71.htm. To examine the circumstances of any internship that your company may be considering, contact the employment law attorneys at Drewry Simmons Vornehm LLP.