Unpaid Internships: A Potential Liability Trap

Over the past few years, there have been a growing number of lawsuits brought by current or former interns.  In these lawsuits, the interns charge that their employers violated wage and hour laws by failing to classify them as employees and pay them the minimum wage for the work they performed.  This issue garnered significant media attention in the summer of 2013, when a federal court judge ruled that unpaid interns who worked for a production company on the filming of the movie Black Swan were actually employees and should have been paid.  At least six notable intern suits have been filed in the past two years, and this has become a potentially lucrative issue for plaintiffs’ lawyers, as the court can award attorney fees to the plaintiffs and most lawyers will take such cases on a contingency fee.  Depending upon the number of interns involved, the damages and/or a settlement could be substantial.  For example, within the past few months, a modeling agency recently agreed to pay $450,000 in order to settle a class-action suit brought by former interns.

The Department of Labor has a six – part test for determining the legality of an unpaid internship:

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.

If an employer doesn’t meet the criteria, the company must pay the intern minimum wage for the work he or she performs.    However, it is important to note that this analysis applies to for-profit companies.  Unpaid internships are generally permissible in the public sector and for nonprofit charitable organizations.

Given the risks involved, it would be wise for businesses who utilize unpaid interns to proceed with caution and have their internship program reviewed by legal counsel.  Our firm has experience in this area and can assist Michigan businesses.

Further reading:

The Revolt of the Unpaid Intern