LABOR AND EMPLOYMENT LAW: The Unpaid Intern: Liability for the Uninformed Employer

Vol. 31 No. 3

By

Stephen A. Mazurak is a professor of law at the University of Detroit Mercy School of Law.

It is commonplace to hear about the use of interns in many businesses ranging from private employers to government employers and nonprofit organizations. The explosion in the use of unpaid interns has not gone unnoticed by the U.S. Department of Labor (DOL).

The purpose of this article is to examine a very limited aspect of this phenomenon: the unpaid intern working at a for-profit entity otherwise covered by the minimum wage and maximum hours provisions of the Fair Labor Standards Act (FLSA or Act).

Fact Sheet #71. The DOL advises that Fact Sheet #71 “provides general information to help determine whether interns must be paid the minimum wage and overtime under the Act for the services that they provide to ‘for-profit’ private sector employers.” To meet the DOL’s determination that the internship may be without compensation, six criteria must be met: (1) The internship, even though it includes actual operation of the facilities of the employer, is similar to training that 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; (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.

Supreme Court precedent. In 1947 the U.S. Supreme Court established the bedrock concept that someone may perform the functions of a job for an employer while trying to learn the skills necessary to perform those needed functions and yet not be an employee under the FLSA. In Walling v. Portland Terminal Co., 330 U.S. 148 (1947), the employer had for many years conducted a course of practical training for individuals seeking to become railroad yard brakemen. The DOL brought an action against the employer for violations of the recordkeeping and minimum wage provisions of the FLSA.

The district court and the court of appeals denied the request for injunction and damages, finding that the individuals at issue were not employees entitled to the benefits of the Act. The U.S. Supreme Court affirmed, finding that § 3(g) of the Act defines “employ” as including “to suffer or permit to work” and § 3(e) defines “employee” as “any individual employed by an employer.” The definition “suffer or permit to work” was obviously not intended to stamp all persons as employees who, without any express or implied compensation agreement, might work for their own advantage on the premises of another. The definitions of “employ” and of “employee” are broad enough to accomplish this. But, broad as they are, they cannot be interpreted so as to make a person whose work serves only his own interest an employee of another person who gives him aid and instruction.

The Court in Tony & Susan Alamo Found. v. Sec’y of Labor, 471 U.S. 290, 302 (1985), had to determine whether individuals who worked for a religious foundation in its commercial businesses were employees under the Act. The employer was a nonprofit religious organization that also operated commercial enterprises, including “service stations, retail clothing and grocery outlets.” The businesses were operated by individuals called “associates,” most of whom, in the Court’s words, “were drug addicts, derelicts, or criminals before conversion and rehabilitation by the [employer].” These individuals did not receive salaries, but the employer provided them with food, clothing, shelter, and other benefits. The district court found that the employer, notwithstanding its incorporation as a nonprofit religious organization, was engaged in ordinary commercial activities in competition with other commercial businesses. It also found that the individuals who worked in these businesses were employees under the FLSA.

The Supreme Court affirmed these findings and conclusions of the district court, noting that for the employer’s commercial activities to be covered by the FLSA, two conditions needed to be satisfied. First, the employer’s business must be an “enterprise engaged in commerce or in the production of goods for commerce.” Second, the individuals labeled “associates” must be employees within the definition of the Act.

In a Sixth Circuit case, Solis v. Laurelbrook Sanitarium & Sch., Inc., 642 F.3d 518, 521 (6th Cir. 2011), the Secretary of Labor sought to apply the child labor provisions of the Act to the employer, the Seventh-Day Adventists. The employer operated a sanitarium as a nonprofit corporation that followed the teachings of the Seventh-Day Adventist Church. The students spent four hours a day in class and four hours a day learning practical skills. The district court applied a “primary benefit test” and considered which party (school or student) received the primary benefit of the work the student performs. The Sixth Circuit agreed with the district court’s conclusion that the individuals were students and not employees.

Unpaid legal internships for private employers. Law students may seek an internship with a for-profit entity and desire to obtain school credit for their work. A special accreditation requirement of the American Bar Association (ABA) prohibits students from receiving both credits toward graduation and compensation for such internships. Problems arise in satisfying both the masters of the ABA as well as the FLSA.

It is critical that law school internship opportunities that grant credit not run afoul of ABA standards. These accreditation standards have a direct, although perhaps unintended, consequence for the for-profit entity that seeks to use law students for its internship program. Standard 305(a) of the ABA Standards for Approval of Law Schools provides: “A law school may grant credit toward the J.D. degree for courses or a program that permits or requires student participation in studies or activities away from or outside the law school or in a format that does not involve attendance at regularly scheduled class sessions.” Interpretation 305-3 of that Standard provides: “A law school may not grant credit to a student for participation in a field placement program for which the student receives compensation. This Interpretation does not preclude reimbursement of reasonable out-of-pocket expenses related to the field placement.”

Reading the Standard and the Interpretation together, it is reasonable to conclude that any student who seeks academic credit for working as an intern for a for-profit employer must do so unpaid. Such lack of compensation will violate the FLSA unless that internship provides benefits only for the student and none, or at least very little, for the employer.

The private law firm and the for-profit employer’s legal department for whom the unpaid intern may perform services may, of course, argue that they are not receiving any benefits from the unpaid intern’s services, but it would be unlikely for the employer to convince a court that it receives no more than negligible benefits from the interns’ work. The employer’s focus must be to discredit the six-factor test and convince the court to engage in some type of balancing test to find that the benefit to the unpaid intern exceeds that of the employer.

An added complication in this area occurs when the private law firm decides to charge its clients for the services of the unpaid intern. Although there is little reported law on this, in at least one case a court reacted negatively to a firm trying to add such costs to an attorney’s fees and cost claim in a case.

ABA Section of Labor and Employment Law

This article is an abridged and edited version of one that originally appeared on page 101 of ABA Journal of Labor & Employment Law, Fall 2013 (29:1).

For more information or to obtain a copy of the periodical in which the full article appears, please call the ABA Service Center at 800/285-2221.

WEBSITE: americanbar.org/laborlaw

PERIODICALS: ABA Journal of Labor & Employment Law (formerly The Labor Lawyer), published three times per year; Labor and Employment Law, newsletter, published quarterly; substantive committee newsletters, published biannually.

CLE AND OTHER PROGRAMS: For a full listing, see tinyurl.com/bz3w2qf.

BOOKS AND OTHER RECENT PUBLICATIONS: The Fair Labor Standards Act, 2d ed., with 2013 Cum. Supp.; The Family and Medical Leave Act, with 2013 Cum. Supp.; Wage and Hour Laws, 2d ed., with 2013 Cum. Supp.; Age Discrimination in Employment Law, with 2012 Cum. Supp.; Employment Discrimination Law, 5th ed.; Employee Duty of Loyalty, 4th ed., with 2012 Cum. Supp.; Employment at Will.

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