As an international business attorney, I often point out the advantages of doing business in the US.  It’s cheap and easy to set up a new company, employment is “at-will” and, in the case of Florida, taxation is comparatively low.  There are, however, a few caveats to keep in mind, and offering unpaid internships is one.

Many of my foreign business clients are used to employing unpaid interns.  That concept exists here in the US as well, but be careful.  The practice is fraught with potential peril.

If you are reading this article then, like all business owners, you want a quick and concrete answer to the question “Can I use unpaid interns in my business?”  Like a typical attorney, my answer is “Well . . . maybe.”

The first question is what body or bodies of law apply to your business.  The most prevalent is the Fair Labor Standards Act (FLSA), which is federal labor law.  There are particular criteria that you can look at to determine whether the FLSA applies to your business, but I’m going to save you some time.  Assume that it does.  Why do I say that?

Courts have gone so far out of their way to find that the FLSA applies — even to businesses that seemingly have nothing to do with interstate commerce — that we might as well say the FLSA applies to every business in every state.

I’m sure there are exceptions but, even if your business is the paradigm of an exempt employer, it would still be dodgy to count on that.  So, assume the FLSA applies to your company.

Department of Labor’s Standard

The Wage & Hour Division of the US Department of Labor has kindly given us some factors to consider in order to determine whether your company’s interns must be considered “employees” and paid minimum wage:

1. 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.
2. 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.
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. The extent to which 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.
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.

So, that does give you something to go by.  The Courts have a similar but different list of criteria . . . and the decisions have not be uniform throughout the country.

The Judicial Standard

1. The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school.
2. The training is for the benefit of the students.
3. The trainees or students do not displace regular employees, but work under their close observation.
4. The employer that provides the training derives no immediate advantage from the activities of the trainees or students, and on occasion his/her operations may actually be impeded.
5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period.
6. The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

If you’re going to use unpaid interns, you had better (i) have a carefully-written internship agreement, and (ii) really try not to make an enemy of the intern.

The Enforcers: Labor Law Attorneys

There are attorneys out there who do nothing other than market to these disgruntled workers.  And, they take these cases on contingency, so it doesn’t matter that the intern cannot afford a lawyer. 

Labor attorneys take the cases for free because labor laws always award attorneys’ fees in a successful lawsuit.  But, that isn’t the worst of it.

Labor attorneys can turn a single disgruntled worker into a gold mine by putting together a class action.  I won’t go into detail about how they do that, but it is quite easy . . . and quite effective.  So, even though all your other happy interns are happy and uninterested in suing your company, they can still be pulled into the class.

The bottom line is your company’s exposure is not limited to the single unhappy intern.

Conclusion

It seems to me internships should probably be limited to training that forms part of a course of study–and, even then, you’re completely safe.  But, if you are the owner of a private company bringing on “interns” who are not participating in any kind of educational program, it may not be possible to put together a program that is 100% safe from legal exposure.

You can do it, but be sure you hire a lawyer to give you some legal analysis and draft the Internship Agreement.  And . . . be nice to your interns.

~ Jeff Harrington, Esq.