Unpaid Internships: Avoid a FLSA Faux Pas
With the excitement of New York Fashion Week coming to a close, there is one recent trend that the fashion industry should pay particular attention to—unpaid internship lawsuits. The fashion industry is now among a recent slew of industries facing potential liability for allegedly improperly classifying interns under the Fair Labor Standards Act (“FLSA”). A class action lawsuit was recently filed against Donna Karan International shortly after a federal judge in New York ruled that Fox Searchlight Pictures violated federal minimum wage and overtime laws by not paying interns who worked on the production of the films “Black Swan” and “500 Days of Summer.” (Glatt v. Fox Searchlight Pictures Inc., No. 11-6784, 2013 U.S. Dist. LEXIS 82079 (S.D.N.Y. June 11, 2013)). Unfortunately for employers, former intern lawsuits are on the rise, with actions being brought against record companies, magazine publishers, modeling agencies, and TV talk show hosts.
A few general principles may be gleaned from recent court decisions in which courts have addressed whether an unpaid internship violates the FLSA. As a practical matter, unpaid internships that offer school credit are generally considered compliant with the FLSA. In determining whether interns at for-profit businesses must be paid, courts are guided by the framework provided in the Department of Labor’s (“DOL”) “Fact Sheet # 71: Internship Programs Under the Fair Labor Standards Act,” available at http://www.dol.gov/whd/regs/compliance/whdfs71.pdf, which was issued in April 2010. While the DOL test is not necessarily conclusive of the inquiry, courts have generally afforded it some deference in determining whether an unpaid internship would overcome the employment label.
To reduce potential liability, employers should consider the following with respect to structuring unpaid internships:
- Teach Skills that Are Fungible Within the Industry
Courts have acknowledged that classroom training is not a prerequisite for an unpaid internship; however, internships must provide something beyond on-the-job training that employees receive. Internships that only provide exposure to menial tasks, such as photocopying or making coffee, are not likely to meet this standard. To the contrary, if the internship is engineered to be more educational than a paid position, it will likely be considered comparable to vocational school. For example, providing training similar to that which would be given in school and is related to an intern’s course of study. Interestingly, one court has held that whether an intern actually learned anything is not dispositive of whether training or useful knowledge was offered by the company, reasoning that even a classic educational environment sometimes results in surprisingly little learning.
- Ensure the Internship Experience Is for the Benefit of the Intern
Undoubtedly, interns receive benefits from their internships, such as resume listings, job references, and an understanding of how a particular office works. The latter benefits, however, are incidental to working in an office like any other employee and are not the result of internships intentionally structured to benefit the intern. Courts have held that resume listings and job references result from any work relationship, paid or unpaid, and are not the academic or vocational training benefits envisioned by the law. Unpaid internships that benefit the intern often involve the receipt of academic credit for their work and/or satisfy a precondition of graduation.
- Do Not Have Interns Perform Routine Tasks that Would Otherwise Be Performed by Regular Employees
Companies should closely supervise interns and not allow them to displace the work of regular, paid employees. Specifically, interns should not perform routine tasks that would otherwise be performed by regular employees. Examples of tasks that courts conclude displace the work of regular employees include: (1) basic administrative work, such as drafting cover letters, organizing filing cabinets, making photocopies, and running errands; (2) picking up paychecks for coworkers; (3) tracking and reconciling purchase orders and invoices; (4) assembling office furniture; (5) arranging travel plans; and (6) chores, such as taking out trash, taking lunch orders, answering phones, and making deliveries.
- Supervise and Train Interns
A company may demonstrate that they received no immediate advantage from an intern’s work by showing that they were impeded by efforts to help train and supervise the intern. In other words, the company had to take time away from productive activities to supervise and train an intern. The latter-referenced training does not include training for menial tasks. Further, courts give no weight to the argument that, by virtue of being a novice, an intern impedes work involving menial tasks. To negate this argument, courts cite the FLSA provision authorizing the Secretary of Labor to issue certificates allowing “learners” and “apprentices” to be paid less than minimum wage. Thus, an employee is entitled to compensation for the hours he or she actually worked, whether or not someone else could have performed the duties better or in less time.
- Set Parameters at the Outset of the Internship
Although the FLSA does not allow employees to waive their entitlement to wages, a company should have an agreement in place that the intern understands there is no entitlement to wages. Further, there should be a clear understanding with the intern that there is no entitlement to a job at the end of the internship.
In sum, to avoid potential liability under the FLSA, companies should carefully structure unpaid internships to ensure that the internship offers more of an educational benefit to the intern than it does a utilitarian benefit to the company.