A few years ago, the New York Times ran an article about investigations into the legality of unpaid internships at for-profit businesses, explaining that such investigations were being conducted by the U.S. Department of Labor, as well as by the labor departments of several states, including California, Oregon, and New York.

At that time, many practitioners expected that there would be a tidal wave of class action lawsuits brought by former unpaid interns but, surprisingly, that wave did not come…until now. 

New York plaintiffs’ law firm Outten & Golden LLP has recently launched a campaign to bring cases on behalf of unpaid interns.  They are soliciting plaintiffs and new cases on their special-purpose website, Unpaid Interns Lawsuit.com, where they also post filings related to the cases that they have brought.  So far, they have filed two class actions in the Southern District of New York and one class action in New York state court, all alleging violations of federal and state wage and hour law.

Are you at risk?

If you are a for-profit business that uses the services of unpaid interns, then, unfortunately, yes.

U.S. Department of Labor Guidance 12-09 outlines six factors that are used by the Wage & Hour Division to determine whether an intership may be unpaid:

1. The training, even though it includes actual operation of the facilities of the employer, is similar to what would be given in a vocational school or academic educational instruction;

2. The training is for the benefit of the trainees;

3. The trainees 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, and on occasion the employer’s operations may actually be impeded;

5. The trainees are not necessarily entitled to a job at the conclusion of the training period; and

6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.

The Guidance further provides that “if all of the factors listed above are met, then the worker is a ‘trainee’, an employment relationship does not exist under the FLSA, and the FLSA’s minimum wage and overtime provisions do not apply to the worker.”

While this Guidance is not binding, it gives clear insight into the federal government’s position on this issue, namely, that the focus of the unpaid internship must be educational, and that interns cannot displace ordinary employees.

Other aspects of the Guidance, however, are not so clear.  What does it mean to say that the internship is “for the benefit” of the interns?  Similarly, what does it mean to say that the company “derives no immediate advantage” from the internship?  Is it possible for interns to get real-life experience that does not benefit the company?  At the present time, the answers to these questions have not yet been established.

How Can I Protect Myself?

Take a critical look at your internship program.

The Guidelines make clear that the primary purpose of an unpaid internship is educational.  Do you provide lectures, workshops, or other training to your interns?  Or, do they simply engage in ministerial tasks?

Take a look at your company’s business model.

Do you rely upon your interns to get your business objectives done, or do you bring on interns because you enjoy mentoring and teaching about your business?

Consider your risk tolerance.

If you are risk adverse, and you rely upon the work performed by your interns, you may want to treat your interns as employees subject to the wage and hour laws.  This is because you may be subject to a significant damages award if you are found to have improperly (or not) paid your interns.  In some cases, damages awards can be in the amount of three times the unpaid wages.

If you are risk tolerant, you may want to wait and see how the current litigations proceed.

No matter your risk tolerence, you should reevaluate your current internship program as soon as possible.