Karin Sweigart rejoins us for another interesting posting on employment compliance issues.  Karin can be contacted at [email protected].

It is estimated about half of the United States’ 1.5 million internships a year are unpaid, a number that may go up due to changes in the Department of Labor’s (DOL) rules governing unpaid internships. Implemented in 2018, the updated rules provide for-profit companies more flexibility to utilize unpaid interns in their workforce. The new seven-factor “primary beneficiary test” holds no one factor dispositive, but instead looks to the circumstances of the relationship as a whole to determine who benefits the most. Interns can remain unpaid, while employees must be paid minimum wage and overtime under the Fair Labor Standards Act (FLSA). While the DOL discusses the seven-factor primary beneficiary test in detail here, the factors can be roughly summarized as:

(1) Is there an expectation of compensation?

(2) Is there hands-on training benefiting the intern?

(3) Is the internship part of course work or for academic credit?

(4) Does the internship follow the academic calendar?

(5) Is the internship limited in duration?

(6) Does the intern’s work complement rather than displace an employee? And

(7) Is there an expectation the intern is entitled to a full-time job post-internship?

If your company is considering utilizing unpaid interns, at a minimum you should protect your business from potential lawsuits by clearly and comprehensively stating in a signed agreement, best reviewed by legal counsel for compliance purposes, the expectations and responsibilities for the internship. Explicitly communicate how you intend your internship to benefit your intern’s education, and steps you will take to provide your interns a meaningful and enriching experience. If you don’t take this responsibility seriously, like Fox Searchlight, Condé Nast, and NBC Universal, you may find your business with a lawsuit on its hands.

But also recognize the practice of using unpaid interns is not without other controversy, and could have far reaching consequences for your business’s reputation — especially if done poorly. Social media and employment search engines such as glassdoor.com and indeed.com give unsatisfied interns a platform for grievances. If your business closely watches your Google, Yelp, Trip Advisor, or other types of public reviews, you need to be equally worried about interns disparaging your company after a less than adequate experience. Additionally, use of unpaid internships is increasingly seen by some as exploitation of younger workers and a hinderance to the economic mobility of minorities who often lack the social structure to be able to work for free. Realize the use of unpaid interns may be viewed by some as inherently discriminatory unless your business finds other ways to confront potential inequality in your internship opportunities.

The Department of Labor may have made utilizing unpaid internships easier, but before your business takes the plunge, it is important for the financial and reputational health of your company you consider the costs. Talk with your legal counsel about the potential costs and benefits of going down this road. The hidden costs could greatly outweigh the benefit to your business if the endeavor is not undertaken with careful consideration.