Are Unpaid Internships Illegal?

by on September 7, 2008

Nobody wants to work for free, yet thousands upon thousands of college students do it every year. They’re not doing it out of the kindness of their hearts or because its for a good cause (ok, many students do take non-profit internships). They do it for “experience.” Many internships offer fantastic learning opportunities, but more often than not the best internships also happen to be paid. My Dad runs a small architecture firm, and he often hires interns. He says that any company that can’t make a profit on an employee who is making $10 an hour (or heave forbid the minimum wage) shouldn’t be in business. I think that he’s right.

Here on One Day, One Internship, we feature both paid internships and unpaid internships. We feature the unpaid ones begrudgingly because we want to be sure that our readers get a broad view of what kind of internships are out there. We have some ethical issues with most unpaid internships (we think that it’s cool for non-profits who are cash strapped), but we also wonder about the legal issues. In response, we’re going to try to answer the question: Are unpaid internship illegal?

If you’re looking for an internship in the law, you’ll probably really enjoy this post. If not, you’ll have to bear with us because it’s important to understand your rights. There aren’t any lawyers on the One Day, One Job / Internship staff, so we’re doing our best to read through the research to get an answer for you. Initially, some Googling turned up a Cohen and Wolf Case Study that outlines the legality of unpaid internships quite nicely. It says that the U.S. Department of Labor’s Wage and Hour Division created a test to determine whether a “trainee” or intern is considered an “employee” based on a 1947 Supreme Court decision that evaluated whether “prospective train yard brakemen were ‘employees’ within the meaning of the Fair Labor Standards Act.” The test requires that all 6 of the following statements are true about the intern’s time with the company.

1. If the training, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in a vocational school;

2. If the training is for the benefit of the trainee;

3. If the trainees do not displace regular employees, but work under close observation;

4. If the employer that provides the training derives no immediate advantage from the activities of the trainees and, on occasion, the employer’s operations are actually impeded;

5. If the trainees are not necessarily entitled to employment at the completion of the training period;

6. If the employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.

This is the law. If any one of these six statements is not true about a given internship, then the interns are considered “employees” and are subject to the monetary provisions of the Fair Labor Standards Act. That means that the interns are entitled to minimum wage and overtime compensation.

The situation gets a bit more confusing when you start interpreting what each of the six “tests” means. This page from the Texas State government sheds some light on some of the exceptions based on interpretations of the law, but it still doesn’t answer our question. The Fair Labor Standards Handbook for States, Local Governments and Schools, does, however, go into great detail about when a student intern is not considered an “employee.”

As a rule, the Department of Labor will not consider students to be employees when they are involved in education or training programs that are “designed to provide students with professional experience in the furtherance of their education and training and are academically oriented for their benefit” (Wage and Hour Opinion Letter, Jan. 28, 1988).

Furthermore,

In a May 10, 1983, opinion letter, the Department of Labor determined that where students would receive college credits for performing an “internship… which involves the students in real-life situations and provides the students with educational experiences unobtainable in a classroom setting,” the interns would not be considered employees.

This seems to conflict with the interpretation found on The Labor and Employment Law Blog, which claims that all unpaid internships are illegal if the intern does any work that benefits the company.

There is no exception to the law allowed just because the “intern” may receive college credit… In order to qualify as an unpaid internship, the requirement is simple: no work can be performed that is of any benefit at all to the company. That is, you can not deliver mail, sort files, file papers, organize a person’s calendar, conduct market research, write reports, watch television shows and report on them, read scripts, schedule interviews, or any other job that assists the employer in any way in running their business.

This does not appear to be entirely correct, for it based on a strict interpretation of “If the employer that provides the training derives no immediate advantage from the activities of the trainees and, on occasion, the employer’s operations are actually impeded.” According to a 2002 decision by the Department of Labor’s Wage and Hour Division, the definition of “no immediate advantage” depends on whether “productive work performed by the mentees would be offset by the burden to the employers (local businesses) from the training and supervision provided.” In other words, the standard of judgment is based on the net gain to the employer. It seems to follow that if a student benefits more from an internship program than his or her employer does, then the intern will not be considered an employee by the Department of Labor.

If you’re confused, that’s ok. The standards of legality for unpaid internships seem a bit wishy-washy – there’s a big gray area. Still, we would guess that many of the unpaid internships that are out there right now are in violation of the Fair Labor Standards Act. What can be done about this? Probably not too much. Bates College’s Economics Department has decided to reject all applications to receive credit for unpaid internships. They are taking a stand, and they should be applauded for it. This Slate article also does a nice job of taking employers to task for being so greedy when it comes to unpaid internships, but beyond moaning and groaning, interns don’t have much power to force employers to pay them. There’s always the option to sue, but is it really worth it?

So, are unpaid internships illegal?

Some are. Some aren’t. It depends upon quite a few factors. By definition unpaid internships are not illegal, but they must meet certain criteria to avoid violating the Fair Labor Standards Act.

One part of us wants to see better enforcement of current laws that affect unpaid internships, but another part of us worries us that it would create a chilling effect that would significantly reduce the number of internships that are offered by companies.

The decision to go unpaid as an intern is mostly personal. When you’re looking for an internship, you need to ask yourself, “will I benefit enough from the training and experience that I gain through this internship to make up for the forgone wages?” If the answer is yes, then you should apply.

Still, if an employer can’t figure out how to put you to good enough use to make more than minimum wage off of your labor, is it really a company that you want to be interning for?

The comments are open for you to leave your thoughts on unpaid internships and for any lawyers who might be reading to correct any mistakes that we have made.