Back in March, we warned you that for-profit businesses using the services of unpaid interns were at risk due to the increased scrutiny being given to whether such unpaid internships violate federal and state wage and hour law.

Since then, there have been several developments (two by a serial plaintiff) that have only increased the risks faced by for-profit businesses using the services of unpaid interns, including, but not limited to, the fact that:

• Plaintiffs in a lawsuit in federal court in New York (Eric Glatt, et al. v. Fox Searchlight Pictures, Inc.) have expressed their intention to add claims on behalf of unpaid interns who worked for News Corp.’s Fox Entertainment Group unit;

• In that same case, Fox Searchlight Pictures’ email to former unpaid interns — encouraging them not to join the class action — is now itself under scrutiny, as plaintiffs’ counsel has successfully called for the email’s production on the basis of their belief that the email “potentially misrepresent[ed]” the lawsuit;

 

• Plaintiffs in another New York case (Wang v. The Hearst Corp.), defeated Hearst Corp.’s effort to re-challenge the Judge’s decision to certify the class of individuals suing Hearst;

 

• On behalf of herself and other similarly situated employees, a former unpaid intern of PBS’s long-running talk show, “The Charlie Rose Show,” successfully reached a settlement in principle of wage and hour claims for unpaid interns; and

 

• The same plaintiff in the Hearst lawsuit mentioned above, has now filed another lawsuit against a business with whom she had an unpaid internship — this time, the jewelry design firm, Fenton Fallon.

All these cases underscore that for-profit businesses using the services of unpaid interns must take a close look at their internship program to determine if it meets state and federal requirements for unpaid internships.

When doing so, consider U.S. Department of Labor Guidance 12-09, which outlines six factors that are used by the Wage & Hour Division to determine whether an internship 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 DOL’s 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.

Can For-Profit Businesses Using The Services Of Unpaid Interns Protect Themselves?

Think critically about your business’s internship program.

The Guidelines make clear that the primary purpose of an unpaid internship is educational.  Does your business include a substantial educational component?  Does it provide lectures, workshops, or other training to interns?

If your managers complain every summer when your business’s unpaid internship program begins, because supervising the interns is inefficient and takes time away from business objectives, that is good circumstantial evidence that your internship program is educational, and that the FLSA’s minimum wage and overtime provisions do not apply.

Take a look at your business model.

Do you rely upon your interns to get your business objectives done?

If the profitability of your business depends on the free labor provided by unpaid interns, it may be hard to argue that the FLSA’s minimum wage and overtime provisions do not apply to your interns.

Perhaps most important, consider your business’s 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, however, you may want to wait and see how the current litigations proceed.

Keep in mind, however, the case against The Hearst Corp.  The plaintiffs there successfully achieved class certification, which (depending on the size of the unpaid internship program at issue) suggests that the liability faced by businesses in these litigations could be quite substantial.

Moreover, if a state Attorney General or the United States Department of Labor decide to jump on the unpaid intern lawsuit bandwagon, it will further add to the risks facing businesses using the services of unpaid interns.

Conservative businesses may well decide to minimize their risks going forward by doing away with their unpaid internship programs altogether, or limiting the number of interns and paying those interns the minimum wage.