\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Unpaid Internships Pose Major Legal Risks, but Are Law Firms Exempt?
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Entering the job market can trigger a rude awakening for new graduates: jobs are scarce and the playing field is tilted in favor of applicants with relevant experience. Many students and recent graduates have turned to unpaid internships, hoping to burnish their resumes, gain valuable workplace experience, and build contacts in the hope of landing a paying position. But for private sector employers who reap the benefits of unpaid work, there are major legal risks. High profile litigation in the publishing and entertainment industries represents a backlash against private sector employers who benefit from free labor while providing little in return. Employers have much to lose if their unpaid internships fail to meet the rigorous standards for exemption from federal minimum wage and overtime laws.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Private sector law firms may have more flexibility in setting up unpaid internships for law school graduates. Nevertheless, use of unpaid internships by private sector law firms is likely to draw increased scrutiny and to require careful consideration of potential legal risks.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0It is not surprising that unpaid internships should come under increased scrutiny: data suggests they may be of little value to interns. Data collected by the National Association of Colleges and Employers indicates that just under half of graduating seniors in 2013 took unpaid internships.1 According to the same survey as applied to 2012 graduates, 37 percent of those who completed unpaid internships were offered jobs. The job offer rate of those who completed no internship at all: 36 percent.2 In light of these numbers, it is reasonable to question whether unpaid interns are receiving value in return for their free labor.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Unpaid interns are increasingly turning to litigation in response to the perception that they are being exploited. In the past two years, high profile cases have been brought against Hearst Corporation, Conde Nast, Fox Searchlight Pictures and NBCUniversal. In January 2014, Elite Model Management settled a lawsuit brought by a group of former interns for $450,000.3 Conde Nast was among several companies that made major changes to its internship program in response to litigation. Some targets of litigation, including The Charlie Rose Show, have converted to a paid internship format.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The FLSA, Walling and the strict rules for unpaid internships
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Although the uptick in litigation challenging unpaid internships in the for-profit sector is relatively new, the legal basis for such litigation is not. For several decades, private sector unpaid internships have been unlawful in all but the most narrow circumstances.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The Fair Labor Standards Act of 1938 (FLSA) sets forth the federal minimum wage, among other wage and hour provisions applicable to virtually every workplace in the country. The FLSA defines "employee" as "any individual employed by an employer." It defines "employ" as "to suffer or permit to work." These definitions contemplate that a person permitted to work for an employer is an employee, irrespective of whether the employer labels such person an "intern," "volunteer" or "trainee." This is because the provisions of the FLSA are not subject to waiver—an employer and employee cannot agree to employment terms that contradict the legal requirements of the statute.4 Incorrect classification of employees as unpaid interns can be costly, resulting in back pay, liquidated damages doubling the back pay amount, and attorneys' fees.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0In Walling v. Portland Terminal Co., 330 U.S. 148 (1947), the Supreme Court faced the question whether time spent in an on-the-job training program was compensable under the FLSA. The Court identified several factors that led it to conclude that time spent in the training program was not compensable. Such factors included:
• the trainees did not displace any regular workers;
• regular employees supervised the trainees' work;
• the trainees' work did not advance the employer's business;
• the program was of significant value to the trainees and was similar to a program in a vocational school; and
• the employer received no "immediate advantage" from the trainees' work.5
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The U.S. Department of Labor has adapted the Walling factors for use in the context of unpaid internships. In Fact Sheet No. 71, published in April 2010, the Department noted that "[i]ntern-ships in the 'for-profit' private sector will most often be viewed as employment." To avoid this presumption, employers must meet a six-part test:
1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training that 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.