Ask The Expert: Building An Intern Program That Limits Risk
Editors Note: Ask The Expert is a recurring TransWorld Business series that explores strategies and tips from experts within our industry and outside of it, to help you strengthen and grow your business and individual career. This article was published in our Summer 2014 issue of TransWorld Business. To download and read a copy of the magazine, visit our iTunes store.
By: Greg Weisman and Dan Zupnick
In recent years, we've seen a rash of lawsuits from allegedly disgruntled interns claiming that their unpaid engagements violated state and Federal employment laws. These lawsuits underscore the fact that the typical "unpaid internship" arrangement is actually illegal, much to the chagrin of most employers (many of whom are unaware of the law) and can subject the employer to a host of nasty liabilities, often on a Class Action basis. The long list of companies caught in the bullseye of this growing cottage industry includes such heavyweights as Fox Searchlight Pictures, Bad Boy Entertainment, Donna Karan International, Madison Square Garden, Conde Nast, and Columbia Records.
No unpaid intern lawsuits in the Action Sports industry have been widely publicized yet, but that doesn't mean they haven't been argued, threatened, or settled.
A common misconception is that an employer will be safe if its intern receives academic credit for their work; however if that intern is picking up your coffee or packing boxes in your warehouse, the signed form from her college is legally worthless. Misapplied more often than used properly, there is an exemption from federal minimum wage laws for interns receiving a "purely educational" experience, similar to one they would receive in a classroom, that, and this is the critical element, creates "no immediate benefit" for the company.
Unpaid interns cannot perform tasks which would otherwise be done by a paid employee, and a review (with a sharp pencil) of exactly what duties were performed by the intern each day they were at the company is typically the first inquiry of plaintiff's counsel seeking to make such a case.
As a baseline, there are six criteria that must be met for an intern to be exempt from federal employment laws. Many individual states impose stricter requirements; for example, under California law there are five additional criteria (for a total of eleven) that must be met for an intern to be engaged without pay. They are:
1. The internship is similar to training which would be given in an educational environment;
2. The internship experience is solely for the benefit of the intern;
3. The intern does not displace the need for regular employees, but works under close supervision of existing staff;
4. The host company derives no immediate benefit from the activities of the intern, and on occasion its operations may actually be impeded;
5. The intern is not promised a job at the conclusion of the internship;
6. The intern is aware they will not be paid;
7. The internship must be part of an educational curriculum at the intern's school;
8. The intern may not receive any benefits given to employees;
9. The education received through the internship program must be generally applicable to all similar businesses, not just the host company's business;
10. The internship hiring process must be based on academic criteria, rather than the company's standard employment criteria;
11. Advertisements for the internship program must be clearly labeled as unpaid and educational.
Few unpaid internship programs safely meet these guidelines, and the administration of such a program, done properly, often costs the company such time and expense that they elect not to continue with it.
A healthy understanding of the exemptions from the relevant laws can help you design an unpaid internship program that limits the risks, but compliance with those laws by properly paying minimum wage, overtime, and other payroll requirements is always the safest path.
Instead of having three new students rotate through your office every week, try selecting the best candidate and pay them minimum wage for one day of focused help every week. They receive their coveted experience, and you get a more productive intern without worrying about a nasty lawsuit.
About The Experts:
Greg Weisman is the Chair of the Apparel Industry Practices Group at Ritholz Levy Sanders Chidekel and Fields LLP, and has served as counsel to action sports companies and their owners for nearly twenty years.
Dan Zupnick is an associate of the firm. Greg and Dan are based in Los Angeles, California.