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By Dovie Yoana King - San Diego Community College District

The Perils of Unpaid Internships The concept of unpaid internships and whether they are lawful under federal and state labor laws has drawn a great deal of attention recently due to high profile cases in the mainstream media. For example, in June 2013, a U.S. District Court judge in Manhattan ruled that Fox Searchlight Pictures violated the Fair Labor Standards Act (FLSA) and New York minimum wage laws by failing to pay production interns on the movie, Black Swan.1 In another case, filed with the U.S. Department of Labor (DOL) in March 2013, student guestworkers from Latin America and Asia who participated in a summer cultural exchange program alleged they had been used as “cheap, exploitable workers” while placed in internship positions at three Pennsylvania McDonald’s franchises.2 Finally, the Director of the DOL’s Wage and Hour Division made national headlines when, vowing to crack down on employers failing to pay interns properly, she stated, “there aren’t going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law,”. 3 This new awareness about unpaid internships has raised concerns among students who, in this weakened economy and increasingly competitive job market, continue to face the difficult decision of whether to participate in such programs. Certainly, the availability of unpaid internships abounds and is generally regarded at most college campuses across America to be a practical way of gaining work experience and/or academic credit. As many will likely discover, however, unpaid internship programs may run afoul of federal and state labor laws, resulting in unlawful employment. This article discusses the perils of unpaid internships.

Employee Rights Under the Fair Labor Standards Act The FLSA, a comprehensive law enacted by Congress in 1938, regulates a number of areas of wage and hour law, including minimum wage, overtime pay, recordkeeping, and child labor standards. The FLSA requires that most employees in the

United States be paid at least the federal minimum wage, which is currently set at $7.25 per hour, for all hours worked and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek. The FLSA defines an employee as “any individual employed by an employer.”4 The FLSA goes on to define “employ” as “to suffer to work” and “employer” as “any person acting directly or indirectly in the interest of an employer in relation to an employee.”5 When an employer “suffers” or “permits” another to work, an employment relationship exists under the FLSA, regardless of the parties’ intentions. It is important to note that the FLSA does not preempt state minimum wage and overtime statutes that afford greater protections and benefits to employees. Indeed, states like Arizona, Florida, Illinois, Washington and Vermont provide higher minimum wage rates than federal law, while other jurisdictions, such as California, Alaska, Nevada and Puerto Rico not only set higher minimum wage rates than federal law but further recognize overtime pay for work performed in excess of 8 hours per day.6

Exception for Bona Fide Volunteer Work The FLSA recognizes the generosity and public benefits of volunteering, and does not seek to pose unnecessary obstacles to bona fide volunteer efforts for charitable or public purposes. However, Congress wanted to minimize the potential for abuse or manipulation of the FLSA’s minimum wage and overtime pay requirements in volunteer situations. Therefore, Section 3(e) (4) (A) of the FLSA and 29 CFR § 553.101 and 553.103 indicate that an individual is a volunteer and not an employee when he or she meets the following criteria: 1) Performs hours of service for a public agency for civic, charitable or humanitarian reasons, without promise, expectation, or receipt of compensation for services rendered. THE PARALEGAL EDUCATOR FALL/WINTER 2013 1


Although a volunteer can receive no compensation, a volunteer can be paid expenses, reasonable benefits, or a nominal fee to perform such services; 2) Offers services freely and without pressure or coercion, direct or implied, from an employer; and 3) Is not otherwise employed by the same public agency to perform the same type of services as those for which the individual proposes to volunteer. Because of the exception for bona fide volunteer work, unpaid internships at government agencies, nonprofits and educational and civic organizations, will likely be regarded as lawful under the FLSA so long as the guidelines are met. For that reason, such opportunities present a win-win situation for students overall by giving them a resume boost while providing a benefit to society at large. However, students should be aware that volunteer positions that primarily benefit the employer and entail tasks that regular employees could otherwise perform, such as organizing files, making photocopies and answering phones, may fall outside of the volunteer exception and be treated as employment in some cases. Further, employers cannot get around the FLSA by misclassifying employees as volunteers or independent contractors in order to avoid paying employees the minimum wage or payroll taxes, disability insurance, social security, unemployment insurance and other employee benefits.

Despite the common pitfalls regarding volunteer positions, which can easily be avoided with some basic career counseling to students, as a whole, bona fide volunteer opportunities present a strong option for students eager to gain experience.

Unpaid Internships in the For-Profit Sector The FLSA makes a critical distinction between volunteer activities and work performed in the for-profit sector. Specifically, the volunteer exception does not apply to the for-profit sector, even if the activity is meant to benefit worthy causes. Therefore, the default rule is that work done in the for-profit sector must be paid. However, there are some circumstances under which students who participate in forprofit private sector internships or training programs may do so without compensation. To differentiate between a regular employee and a learner/trainee who may be unpaid, the DOL has developed six guidelines.8 To be exempt from federallymandated minimum wage and overtime pay provisions, forprofit sector employers must comply with the criteria for a learner/trainee, as follows:

1) The training, even though it includes actual operations of the facilities of the employers, is similar to that which would be given in a vocational school. 2) The training is for the benefit of the student.

As an example, I recently handled a case on behalf of a college student who accepted an “internship� at a prominent nonprofit organization in San Diego.7 The student was given the choice of working as a volunteer or independent contractor on an educational campaign in exchange for some compensation (although much less than the minimum wage) while earning academic credit for school. However, the arrangement gradually became coercive when the employer insisted that the student work 12 hour days and incur substantial out-of-pocket job expenses as a condition for receiving a stipend. Not surprisingly, the student struggled to stay financially afloat during the semester and to keep up with homework. The job also took a physical and emotional toll, causing the student to contemplate dropping out of school. Instead, however, the student opted to seek legal help at the conclusion of the internship. With the intervention of my law firm, the nonprofit employer was quickly persuaded to pay the student all back wages owed, including overtime pay, penalties, liquidated damages and other generous remedies available to misclassified employees under the California Labor Code, rather than face liability in court. 2 FALL/WINTER 2013 THE PARALEGAL EDUCATOR

3) The student does not displace a regular employee, but works under the close observation of a regular employee or supervisor. 4) The employer provides the training and derives no immediate advantage from the activities of the student; and on occasion, the operations may actually be impeded by the training. 5) The student is not necessarily entitled to a job at the conclusion of the training period. 6) The employer and the student understand that the student is not entitled to wages for the time spent training.


These guidelines have never been fixed in regulation, but the DOL has taken the position that if all six factors are met, no employment relationship exists under the FLSA and minimum wage provisions will not apply to the intern.9 Despite its strict application, however, the Wage and Hour Division of the DOL has in the past recognized in its opinion letters that the outcome of a particular case will depend on the facts surrounding the internship. Further, while some courts prefer a “totality of the circumstances” analysis in approaching the issue, other courts have ignored the six guidelines altogether, preferring instead to simply focus on whether the employer or the intern/trainee was the “primary beneficiary” of the arrangement.10 Some employers maintain that the DOL’s criteria as it relates to unpaid internships are obsolete and rarely enforced, but such views are not likely to hold muster in light of recent cases, such as that of the production interns in New York, signaling that courts may be moving in a new direction. Further, while some employers attempt to use academic credit or externship programs as a legal justification for unpaid internships, or attempt to misclassify employees as independent contractors, the bottom line is that employers face considerable risk when implementing unpaid internship programs that are inconsistent with the FLSA. For that reason, college advisors should avoid facilitating questionable internships by developing specific goals and criteria that are consistent with DOL guidelines. Further, advisors should develop prescreening procedures applicable to for-profit private employers prior to approving a student for an unpaid internship placement. CONCLUSION

There are several takeaways from this article for educators, employers and students involved in unpaid internship programs. First, contrary to popular belief, there are real downsides to unpaid internships that should be fully considered and weighed against any potential benefits. Second, students should be encouraged to focus on gaining meaningful training primarily for their own benefit rather than taking on menial jobs, such as picking up the boss’ dry cleaning or setting the office coffeemaker, which may require that they be compensated consistent with state and federal minimum wage laws. Third, college administrators would be well advised to review their internship program guidelines and assure that they are compliant with current legal requirements, and further avoid advertising, promoting and facilitating questionable internships that place students and employers at risk. Finally, there may be a light at the end of the tunnel for students who are willing to step forward to assert their workplace rights. In many local communities, free legal clinics

or pro bono programs are available to assist needy individuals with employment matters. A good resource is the National Employment Lawyers Association’s website accessible at www.nela.org.  ENDNOTES 1Glatt v. Searchlight Pictures Inc., No. 11 Civ. 6784, 2013 WL 2495140 (S.D.N.Y. June 11, 2013) (Pauley, J.). 2The students were participants in the U.S. State Department’s J-1 Summer Work Travel Program. A copy of the students’ DOL complaint and other information is available at the National Guestworker Alliance website at: www.guestworkeralliance.org (as of July 1, 2013). 3 The statement was made by Nancy J. Leppink in conjunction with the April 2010 release of DOL’s Fact Sheet #71, “Internship Programs under the Fair Labor Standards Act,” located at: www.dol.gov/whd/regs/compliance/ whdfs71.pdf (as of September 30, 2013). 4 29 U.S.C. § 203(e)(1). 5 29 U.S.C. § 203(d), (g). 6 An interactive map of state minimum wage rates as compared to the federal can be located at: www.dol.gov/whd/minwage/america.htm (as of July 1, 2013). 7 The facts of the case have been slightly altered to protect the privacy of the student. 8 The DOL’s six guidelines have their origin in the U.S. Supreme Court case, Walling v. Portland Terminal Co., 330 U.S. 148, 152 (1947), which held that that the FLSA does not apply to those who work on the premises of another for their own advantage. The Court identified six characteristics of the trainees’ work that removed it from the scope of employment under the FLSA. 9 Wage and Hour Division, Opinion Letter. FLSA2004-5NA, 2004 WL 5303033 (May 17, 2004). 10 See McLaughlin v. Ensley, 877 F.2d 1207, 1209-10 & n. 2 (4th Cir.1989); Carter v. Mayor & City Council of Baltimore City, 2010 WL 761210 (D. Md. March 2, 2010).

BIOGRAPHY

Dovie Yoana King is an Adjunct Professor at the San Diego Community College District, where she currently teaches Labor Law. She is also an attorney in private practice at Ochoa Legal Group. Dovie is a member of the American Association for Paralegal Education. She is affiliated with the AFT Local 1931 and AFL-CIO Lawyer’s Coordinating Committee. Dovie earned her bachelor’s degree from Brown University and juris doctor from Northeastern University School of Law.

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The Perils of Unpaid Internships