BEWARE OF THE LEGAL PITFALLS AND PLAN ACCORDINGLY
A Great Idea
This is the season when your company is thinking about hiring some interns for the summer. That’s usually a great idea. Interns can take up some of the slack for vacationing regular staff, increase your firm’s profile in the community, and, if all goes well, even allow you to audition potential future full-time hires.
But there are pitfalls – very expensive ones — if you plan on offering unpaid internships. In one well-known case, for example, NBCUniversal Inc. paid $6.4 million to settle a class action suit filed by former unpaid interns at MSNBC and Saturday Night Live who alleged that they should have been paid.
The Fair Labor Standards Act and the New York Labor Law
The problem you would face in looking to hire unpaid interns is that both the federal Fair Labor Standards Act (“FLSA”) and the New York Labor Law require for-profit employers to pay non-exempt employees (i.e., nonsupervisory, nonexecutive and nonprofessional employees), whether you classify them as “interns” or “trainees,” at least the federal minimum wage plus time and one-half for all overtime hours for all hours they work. New York’s minimum wage is nearly twice the federal minimum.
The “Primary Beneficiary” Test
Unpaid internships are still legally possible. Interns are not considered employees under the FLSA if they meet a stringent “primary beneficiary” test, demonstrating that the internship prim-arily benefits the intern. Under this test to determine whether an unpaid internship is legal:
- The internship must provide training similar to that which the intern would get in an educational setting (for example, it is tied to the intern’s formal education program by in-tegrated coursework or the receipt of academic credit);
- The internship should be for the intern’s benefit, not to your company’s immediate advantage or as a source of free labor;
- An intern cannot replace your regular paid employees or perform work that directly benefits your company; and
- Both you and the intern understand that the internship is unpaid and that the intern is not entitled to compensation or to a paid job at the conclusion of the internship.
The “primary beneficiary” test, however, is an extremely high hurdle to overcome, and wage and hour law violations can be very costly, including liability for back wages, 100% liquidated damages and attorneys’ fees.
Our Best Advice
To be 100% certain that your company is not violating the FLSA or the New York law, the most prudent advice is to pay interns at least the New York minimum wage plus overtime.
If, however, you still wish to maintain an unpaid internship program:
- Contact various educational institutions from which you would like to recruit interns and ask them to work with you to set up an internship program that meets the FLSA’s “primary beneficiary” test;
- Require unpaid interns to sign a written agreement stating that the internship is for training, is unpaid, and is for a fixed duration; and
- Maintain records describing the intern’s job duties (to show that their work complements rather than displaces the work of your paid employees) and under what circumstances the intern will receive academic credit for their work.
If you have questions about or need assistance in setting up an internship program, please contact the head of our Employment Law practice, Robert Gosseen, at (212)743-71212 or at rgosseen@ssrga.com.