Internships & the Law
By Susan Foster and Gil Fried
Are you a legal scofflaw? We are not talking about bank robbers or someone driving three miles over the speed limit. We are talking about a common practice—unpaid internships. While we all feel that people should pay their dues, when are we crossing the line between helping someone launch their career against saving money by not paying interns? In other words, are organizations violating the Fair Labor Standards Act (FLSA) by filling previously full-time employment positions with an unpaid or underpaid intern?
Generically, an intern is defined as: A student or a recent graduate undergoing supervised practical training. The key to this definition is that the student is receiving practical training, not that the employer is receiving free or cut-rate employees. The federal government does not define an intern for private business. They do have formal definitions for volunteers, student learners, learners and apprentices. With the exception of volunteer, the federal government still requires some form of payment to individuals performing in these capacities. The Code of Federal Regulations (29 CFR § 553 - 2007) defines a volunteer as one who "performs hours of service for a public agency for charitable reasons without promise expectation or receipt of compensation." An unpaid intern would not fall within the scope of either of these definitions in most internships. Nancy J. Leppink of the Labor Department recently told the New York Times, "[I]f you're a for-profit employer or you want to pursue an internship with a for-profit employer, there aren't going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law."
In fact, utilizing a "free" intern is not just a possible legal concern, but a major ethical dilemma. In one survey almost 77 percent of students said they need to work second jobs in order to also take part in an unpaid internship, according to a recent Intern Bridge report. This restricts a full-time commitment a student may wish to make to an organization and both parties suffer.
The Department of Labor (DOL) issued Fact Sheet #71 April of 2010 detailing six criteria an internship must meet in order for an intern to be unpaid. In essence, the DOL looks at an unpaid internship as a training program, not an employment program. The six criteria include:
- 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.
- The internship experience is for the benefit of the intern.
- The intern does not displace regular employees, but works under close supervision of existing staff.
- 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.
- The intern is not necessarily entitled to a job at the conclusion of the internship.
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
Some internship organizations meet some of the criteria, but the DOL makes it very clear that all six criteria must be met in order for a non-employee situation to exist. The DOL also states, " the more an internship program is structured around a classroom or academic experience as opposed to the employer's actual operations, the more likely the internship will be viewed as an extension of the individual's educational experience." Thus, many tasks that are typical of interns, like stuffing ticket envelopes, preparing mass mailings, preparing birthday kits, working a concession stand, game day operations crew, and performing sales functions or other services that benefit the employer are technically illegal under many internship agreements if the intern is not paid according to FLSA requirements.
A recent trend involves "credit" only internships where sport organizations will only allow someone to work as a "free" intern if they receive college credit. We analogize this to the trend some employers had in naming workers as independent contractors. Just because an employer calls someone an independent contractor does not mean the government cannot find the employer to be mistaken and then assess significant penalties for failing to pay taxes, not having the employee covered by workers' compensation insurance and related issues. This is the case even if both the employer and the worker agree the relationship is an independent contractor relationship.
Some students who partake in unpaid internships receive college credit in exchange for their experience. In a 2004 DOL opinion letter, it was stated that students participating in an internship program must be enrolled for college credit. Interns receiving college credit are supposed to perform tasks and activities that build upon one another, increase in complexity and help the intern learn and master basic skills. The intern also should be exposed to all aspects of their chosen industry. As with the FLSA, these interns cannot displace a regular employee, but rather close supervision of an intern by an individual who is skilled and regularly performs the same task would be expected.
Several non-sport related DOL rulings seem to suggest that as long as the internship is a prescribed part of the curriculum, is part of the school's educational process and is predominantly for the benefit of the student, the fact the employer receives some benefit for the student's services does not make the student an employee for purposes of wage and hour law. This would seem to indicate that a student from a college of business would need to engage in business-related activities such as selling tickets, developing marketing plans and developing potential budgets. However, serving hot dogs at a concession stand or dressing up as a mascot to make a birthday appearance would not count. This is not to say that such tasks are not important and everyone should learn such skills, but interns should be paid for such activities.
An internship site should be able to answer "yes" to most of the following questions if an unpaid internship exists or is being considered for implementation:
- Is the work that you are offering an integral part of the student's course of study?
- Does the student have to prepare a report of his/her experience and submit it to a faculty supervisor?
- Have you received a letter or some other form of written documentation from the school stating the internship is approved/sponsored by the school as educationally relevant and the student is enrolled for course credit?
- Will the student perform work that other employees also perform with the student for the purpose of learning and not necessarily performing a task for the employer?
- Is the student assigned to a full-time employee, shadowing that individual, and have the opportunity to learn a specific skill, process or other business function?
- Is there educational value to the work performed, that is, is it related to the courses the person has taken or is taking in school (i.e., not just engaged in mundane/repetitive tasks)?
- Is it clear that a job is not guaranteed upon completion of the training or completion of the person's schooling?
- Is there a regular employee doing the work alongside the unpaid intern and assisting them in learning the business?
- Is the intern part of a team doing a job, or are they working in an area by themselves?
- Would you normally have to pay someone to perform tasks, but, by placing an intern there, you do not need to hire a paid employee?
Federal and state investigators are starting to crack down on the illegal non-payment of interns. If a government agency starts investigating the sports industry, it could face a major backlash, including fines and lawsuits from former interns who were never paid and now want to obtain back wages, overtime and other monetary damages. Imprisonment is highly unlikely for intern violations of the FLSA, but such a punishment is an enforcement option. The potential legal ramifications can be disastrous for an organization.
Hiring an intern without compensation violates the original reason the FLSA was signed into law—to prevent poor labor conditions and raise the standard of living. A recent Chronicle of Higher Education article by Tom Hayden (March 2010) stated that even students who hold jobs while in school fall tens of thousands of dollars in debt. An internship that requires a student to pay all relocation expenses, housing costs and ordinary living expenses without any income prevents many from applying for a position for which they are highly qualified. The resulting scenario often means an organization is only hiring an individual who might live in the local area or whose parents can afford to support them. The organization is not necessarily getting the best qualified candidate. Are sports management professionals sending an inappropriate message in a time of critical economic times and relaying the wrong ethical message?
Here are some suggestions:
- Reorganize a current internship program to meet the DOL guidelines and define an intern as an individual working 20 or more hours per week. Shorter time periods might be appropriate if the interns is truly there to learn and is assigned to a supervisor who "teaches" a new skill each time the student reports to work.
- Create an employment situation and pay an intern the federal minimum wage for up to 40 hours of work per week and apply federal overtime laws for any hours worked over the 40. This can create a great training opportunity for observing potential new employees. Following such a strategy may also provide better protection under other state and federal employment laws.
- Investigate membership in the Cooperative Education and Internship Association and learn about creating a cooperative education partnership with institutions that have structured student guidelines and a quality sport business internship program. You can find more information at www.ceiainc.org.
- For interns working in retail or service stores or college and universities, apply for a DOL certificate that allows a college student to be paid 85 percent of the federal minimum wage. Once the student graduates, the full minimum wage must be paid. (Be aware that this type of program does have some limitations.)
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