Unpaid Internships With Private For-Profit Employers
Interns in the for-profit private sector typically must be paid in accordance with the Fair Labor Standards Act ("FLSA"), 29 U.S.C. §§ 201 et seq., minimum wage and overtime requirements because they will often qualify as “employees” rather than “trainees.” See our Wage and Hour Laws page for such definitions.
In Walling v. Portland Terminal Co., 330 U.S.148, 152 (1947), the U.S. Supreme Court held that individuals working for another for their own benefit without expectation of compensation may not be employees:
Id. Following the Court’s decision in Walling, the U.S. Department of Labor ("USDOL") has recognized that there are some circumstances where an employer may not be required to compensate a “trainee” or an intern because no employment relationship exists under the FLSA. To determine whether an internship program meets the USDOL exclusion, the programs must meet all six of the following criteria, derived from the Walling decision:
- 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;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- 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;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
See U.S. Department of Labor Wage and Hour Division, Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act; see also 5 C.F.R. § 551.104 (applying the same factors above to “trainees”). Whether interns are employees under the FLSA will depend upon all of the circumstances surrounding their activities on the premises of the employer. Id. If all of the factors identified above are met, then the intern is not considered an employee under the FLSA and the minimum wage and overtime requirements do not apply to the for-profit employer.
For-Profit Employers Will Have Difficulty Satisfying the Six-Factor Test for Unpaid Interns
The USDOL six-factor test is extremely narrow and it can be difficult for internship programs satisfy the test. In 2010, Nancy J. Leppink, acting director of the USDOL’s Wage and Hour Division, warned that, “If you’re a for-profit employer or you want to pursue an internship with a for-profit employer, 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 . . . .” (Steven Greenhouse, The Unpaid Intern, Legal or Not, The New York Times (Apr. 2, 2010). As noted below, private for-profit employers will struggle to satisfy all of the six factors of the USDOL test:
- Factor one considers how similar the internship is to an educational environment, as opposed to the employer’s actual operations. The more educational, academic, or classroom-like the internship experience is, the less likely the intern will be considered an employee. Some employers have tried to solve compliance issues under the FLSA by offering school credit to unpaid interns as a benefit to the intern. School credit alone, however, likely will not satisfy the USDOL test, because all six factors must be considered.
- Factor two requires that the internship experience is for the benefit of the intern. If the intern’s services include tasks such as filing, performing other clerical work, or assisting customers, it is likely that the employer is benefiting from the internship experience, and thus considered an employee under the FLSA. This factor will likely be very difficult for an employer to satisfy.
- Factor three focuses on whether the intern displaces regular employees. If the employer would have hired additional employees or required existing staff to work additional hours had the interns not performed the work, then the interns will be viewed as employees and entitled compensation under the FLSA.
- Factor four requires that the employer derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded. This may be the most difficult factor for employers to meet because many of the tasks that interns are asked to perform will derive immediate advantages to the employer.
- Factor five considers whether the intern is entitled to a job as the end of the internship. If so, it is more likely that the intern will be considered an employee under the FLSA. This factor can be difficult to satisfy for employers that wish to use internship programs as a “proving ground” for new workers just finishing school or entering the workforce.
- Factor six considers whether the employer and intern agree that the intern will not be entitled to wages for his or her services. Employers should not depend on this factor alone, however, because even if the intern agrees not to be paid the intern may still be considered an employee under the FLSA and entitled to wages.
Tips for For-Profit Companies and Employers
For-profit companies may be tempted to implement unpaid internship programs because they can be cost-effective for the employer and beneficial for student interns in gaining real-world skills. Given the difficulty of meeting the USDOL six-factor test, however, coupled with the uncertainty about the legality of utilizing unpaid interns under the Minnesota Fair Labor Standards Act ("MFLSA"), Minnesota private for-profit employers face substantial legal risk when utilizing unpaid interns. Misclassifying interns as trainees rather than employees can expose a company to claims for unpaid minimum wages and overtime pay, liquidated damages in an equal amount, and an award of attorney’s fees and costs under the FLSA.
If a Minnesota private for-profit employer chooses to adopt an unpaid internship program despite these risks, the employer can reduce the potential for liability under the FLSA by following these recommendations:
- Working with educational institutions to offer school credit for completion of internships;
- Implementing structured and formal training sessions for interns that are academic in nature;
- Working with the intern to set specific goals and tailoring the internship program to meet the intern’s objectives rather than performing productive work dictated solely by the employer;
- Refraining from allowing unpaid interns to conduct filing, clerical, or other administrative work;
- Avoiding the displacement of other employees through the use of unpaid interns;
- Continuing normal hiring processes for new employees while the interns are being utilized;
- Consciously impeding the company’s operations for the benefit of the interns by offering special training sessions by skilled employees who take time away from their normal duties;
- Developing written internship agreements under which the individual acknowledges that he or she is not entitled to a job at the end of the internship and there is no expectation of compensation;
- Avoiding hiring of interns immediately after the conclusion of his or her internship;
- Requiring interns to complete the employer’s normal application, interview, and screening process if the employer wishes to consider the intern for regular employment;
- Avoiding the application of the company’s employee handbook and work rules to interns; and
- Maintaining detailed itemized records of all expense reimbursements to unpaid interns.
Minnesota Intern Law Initial Legal Consultation
If your company currently works with unpaid interns or is thinking about implementing an unpaid internship program in the future, you may wish to seek legal advice regarding the legality of your program and assistance in structuring your program to minimize the risk of litigation. To learn more, Trepanier MacGillis Battina P.A. offers a two (2) hour initial legal consultation
regarding your Minnesota intern law questions for the flat fee of $500.
To schedule your initial consultation, please read the Terms & Conditions and contact Legal Assistant Joni Spratt at 612-455-0500 or email@example.com.
© 2013 Trepanier MacGillis Battina P.A.
The Minneapolis internship and employment attorneys of Trepanier MacGillis Battina P.A. in Minneapolis, Minnesota represent employers regarding unpaid internship law, wage and hour law, overtime, unpaid wages, and unpaid commissions. Our Minneapolis internship and employment attorneys represent clients in Minneapolis, St. Paul, St. Cloud, Rochester, Duluth, Albert Lea, Apple Valley, Brainerd, Eagan, Eden Prairie, Edina, Elk River, Mankato, Maple Grove, Minnetonka, Moorhead, Richfield, Stillwater, Twin Cities, and other cities within the State of Minnesota (MN) (Minn.).