In recent years, unpaid interns have made headlines by bringing suit against companies for allegedly failing to pay minimum wage and overtime wages in violation of the Fair Labor Standards Act (FLSA) and state wage and hour laws.  In order to avoid potential litigation and negative publicity, employers should review their requirements under the FLSA and related case law as outlined below.

The FLSA requires most employers to pay employees the federal minimum wage.  This general rule is subject to certain exceptions, such as that which exists for unpaid interns who “work” with a company as part of a structured educational experience.  In order for this exception to apply, an employer must be in compliance with the standards set forth by the U.S. Department of Labor (DOL) [PDF].  Specifically, the following six criteria must be met:

  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 these criteria are all met, an employment relationship does not generally exist and the minimum wage and overtime provisions do not apply to the unpaid intern.  However, when an unpaid intern brings a benefit to the company and/or performs work that would otherwise be paid, there exists the possibility that an employer could face legal trouble.

For example, In June of 2013, a New York Federal Court [PDF] held that individuals working for Fox Searchlight Pictures, Inc. on the set of Black Swan had been improperly classified as unpaid interns when they had been performing tasks such as obtaining documents for personnel files, picking up paychecks for coworkers, handling purchase orders and making copies.  Just last week, on August 20, 2013, a former unpaid intern of Sean Combs/P. Diddy’s record label (Bad Boy Entertainment Inc.) brought suit seeking to represent a possible class of over 500 former interns who were allegedly misclassified as interns.  Salaam v. Universal Musical Group, Inc. et al., Case No. 1:13‑cv-05822-JPO in the U.S. District Court for the Southern District of New York.  Similar claims have been brought against Gawker, NBC, Conde Nast, Hearst Corporation, PBS and others.  Even the Obama administration is under fire as former White House interns are set to launch the Fair Pay Campaign on Labor Day, which calls the government to pay its interns and set a positive example for other employers.

So what does this mean for employers?  Unpaid internship programs do not necessarily need to be eliminated across the board—they provide important professional opportunities for young people exploring the work force.  However, employers must be mindful of the current legal climate surrounding this issue, and there must be a careful review of any such unpaid program to ensure compliance with all the DOL criteria listed above.