By Matthew C. Sgnilek
Summer is the season for the beach, barbecues movies… and for employers, interns. Approximately 70 to 75% of students at four year colleges undertake at least one internship. Until recently, unpaid internships were the norm and what many considered a rite of passage. The practice took a sharp turn in 2013 following a court challenge by unpaid interns at Fox Searchlight. The interns claimed they were entitled to be paid wages, including overtime, and expense reimbursements. The Court agreed that the interns were required to be paid. The ruling put a scare in employers nationwide who utilize unpaid interns.
As the summer season begins, making sure interns are properly classified as paid or unpaid is as necessary sunscreen to make sure employers aren’t later burned with a costly lawsuit. In recent years, the U.S. Department of Labor (“DOL”) and California’s Division of Labor Standards Enforcement (“DLSE”) have become increasingly aggressive in identifying and seeking damages against employers who misclassify their workforce, including interns. Fortunately for employers, the DOL has crafted a six standard test to guide employers on whether or not an internship must be paid or unpaid. The DLSE’s standard mirrors that of the DOL.
The following six standards must be met in order to establish an internship can be unpaid:
- The internship, even though it includes operation of the employer’s equipment or facilities, must be similar to training that would be given in an education environment;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees but works under close supervision of existing staff;
- 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 intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
If any of the above factors is not met, the internship must be paid. A paid intern must be compensated for the services he or she performs by being paid at least the minimum wage, as well as applicable overtime.
The cost of misclassification is steep. Employers who fail to properly pay interns can be liable for unpaid wages, plus liquidated damages in an equal amount, attorney’s fees for the prevailing “intern.” Additionally, the misclassification could result in other implications including workers’ compensation coverage, unemployment benefits, tax issues and other Labor Code violations such as missed meal and rest breaks. While there is no panacea to avoid litigation, employers offering internship should perform a critical examination before classifying an internship as unpaid.