6 factors to help determine whether your unpaid internship is legal

The rules for what constitutes an unpaid internship were established in 1947.

6 factors to help determine whether your unpaid internship is legal

Unpaid internships got a new round of scrutiny in 2013 when a federal district court judge in New York found Fox Searchlight Pictures violated unpaid internship rules by not paying two interns on the set of “Black Swan.” Contrary to popular belief, labeling a “job” an “internship” isn’t enough to make it legal to get unpaid labor.

So how can companies keep their internships within the bounds of the law?

The 6-point test for unpaid internships

The rules for what constitutes an unpaid internship were settled under the Supreme Court case Walling v. Portland Terminal in 1947. According to the U.S. Department of Labor, there is a six-point test that determines whether an internship should be unpaid:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which 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.

"Unpaid internships have been around for decades and more prevalent in the years surrounding the Great Recession,” says Michelle Bomberger, founder of Equinox Business Law Group, which provides business-focused legal counsel to entrepreneurs and business owners. Regarding the six-point test: “Two key elements stand out for companies determining whether an internship must be paid. The first is that the employing company derives no ‘immediate advantage’ from the intern; and the second is that the internship benefits the intern.”

The point of an unpaid internship, Bomberger says, is primarily to help the intern gain skills and not be doing work that replaces a paid position the company would otherwise hire an employee to perform. “These criteria should change the company's view of unpaid interns from someone who can help get something done for the company to an approach of teaching someone valuable skills,” she says.

If your organization’s unpaid internship becomes the focus of a lawsuit, the court will examine whether it passed the six-point test, says Thomas J. Simeone of Simeone & Miller LLP. “The factors that a court will consider is how much training and instruction the intern receives, whether the intern is replacing the work of other employees, whether the intern is automatically entitled to a job upon completion of the internship, and whether the internship provides for training and experience to the detriment of the employer.”

“Overall, the key factor is that the internship must include valuable training and truly be for the educational benefit for the intern, rather than simply an opportunity to work for free in a position that already exists in an attempt to impress the employer,” Simeone explains.

Are unpaid internships worth it?

Some experts even say unpaid internships are a bad idea from a risk/benefit standpoint. “Unpaid internships are being targeted by the Department of Labor and private attorneys in collective (i.e., class-type) actions comprised of all unpaid interns who have worked for the employer for the previous three years,” says Kelly Kolb, an employment law attorney at Buchanan Ingersoll Rooney.

The financial consequences of an improperly structured unpaid internship can be significant, says Kolb. And other risks include minimum wage or overtime violations under state and federal law, IRS fines and penalties, and workers compensation fines and penalties.

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Legal disclaimer: This information is not intended to constitute legal advice and should not be relied upon in lieu of consultation with appropriate legal advisors in your own jurisdiction.