NY State Bar Ethics Committee Says “Billing client for work performed by an unpaid student-intern” is allowed.

New York State Bar Association
Committee on Professional Ethics

Opinion 1090 (3/31/2016)

Topic: Billing client for work performed by an unpaid student-intern

Digest: A law firm may bill a client for work performed by a student-intern despite the fact that the law firm does not pay the intern, because the intern receives academic credit for the work, as long as (i) the internship program complies with applicable law, (ii) the educational institution does not object to the client charges, and (iii) the charge is not excessive.

Many Unpaid Intern’s face a “Prisoner’s Dilemma”

Many of today’s unpaid interns find themselves in the classic prisoner’s dilemma situation. For those who are not familiar with the prisoner’s dilemma, a description from Wikipedia should help:

The prisoner’s dilemma is a canonical example of a game analyzed in game theory that shows why two individuals might not cooperate, even if it appears that it is in their best interest to do so. . .  A classic example of the prisoner’s dilemma (PD) is presented as follows:

Two men are arrested, but the police do not possess enough information for a conviction. Following the separation of the two men, the police offer both a similar deal—if one testifies against his partner (betrays partner), and the other remains silent (cooperates with partner), the betrayer goes free and the cooperator receives the full one-year sentence. If both remain silent (cooperate), both are sentenced to only one month in jail for a minor charge. If each ‘rats out’ the other (betrays), each receives a three-month sentence. Each prisoner must choose either to betray or remain silent; the decision of each is kept quiet. What should they do?

…In the game, the sole worry of the prisoners seems to be increasing his own reward. The interesting symmetry of this problem is that the logical decision leads both to betray the other, even though their individual ‘prize’ would be greater if they cooperated.

So, what does this have to do with unpaid interns?

In unpaid internships, interns provide labor for businesses that often need the work completed. Without the unpaid intern, the business would pay for the work to get done.  If all unpaid interns cooperated with each other (refused to work for free) and didn’t defect (agree to work for free), then many of them would get paid for their work.

Is it a perfectly analogous prisoner’s dilemma? No. It is not perfectly analogous because for some unpaid interns (those who can afford to work for free), defecting and working for free does actually provide them with a better result. It is in some “defectors’” best interest to undercut those who cannot “stick it out” for long periods of unpaid work.

Though it’s a free market and people should be allowed to compete, society does not consistently apply this belief.  We allow labor to unionize, and congress enacts laws that give businesses subsides and create big business protectionist regulations to prevent competition. We shouldn’t only make special exceptions to the labor protections for the weakest and most vulnerable people, unpaid interns. The law should apply to all or none. Be consistent. If you want unpaid internships to be legal, you must also be for getting rid of minimum wage laws and a plethora of other labor protections for everyone.

For the sake of putting things in perspective, unpaid interns who ask for minimum wage law protections are not demanding to be paid enough to afford a lavish lifestyle. They want to be able to afford their student loan payments and move out of their parents home on the  take home pay of $13,870 per year.

Unpaid Interns and New Jersey Labor Laws

  1. Objectives of the New Jersey Wage and Hour Law (NJWHL)
  2. NJ Wage and Hour Law Basics
  3. Rights under the NJWHL unwaivable by contract
  4. Am I covered by the NJWHL?
  5. Am I legally an Intern/Trainee or an Employee?
  6. Am I a Volunteer?
  7. What is considered “Work”?
  8. What if I work for a non-profit?
  9. What about the exemptions to the New Jersey Wage and Hour Law?
  10. Are there Statute of Limitations? How long do I have to bring my claim?
  11. What damages am I entitled to recover under New Jersey Wage and Hour Law?
  12. What about unreimbursed expenses?
  13. What if there is no record of how many hours I worked?
  14. What defenses do Employers have for noncompliance with NJWHL?
  15. What if I was unfairly terminated or retaliated against?

1.?? Objectives of the New Jersey Wage and Hour Law (NJWHL) The public policy of New Jersey’s Wage and Hour Law is to safeguard workers health, efficiency, and general well-being and to protect them as well as their employers from the effects of serious and unfair competition resulting from wage levels detrimental to their health, efficiency and well-being. The employment of an employee in any occupation in New Jersey at an oppressive and unreasonable wage is declared to be contrary to public policy and any contract, agreement or understanding for or in relation to such employment is be void. Put simply, the nature of the statutory scheme is to protect employees from unfair wages and excessive hours. Both the New Jersey Wage and Hour Law and the Federal Fair Standards Labor Act (FLSA) are humanitarian and remedial legislation’s. New Jersey courts have noted that the New Jersey Wage and Hour Law “is social legislation designed to correct abuses in employment,”and that “the humanitarian and remedial nature of this legislation requires that any exemption therefrom be narrowly construed.”
2.?? New Jersey Minimum Wage Law Basics New Jersey’s Minimum Wage Law is modeled upon and in many instances identical to the FLSA regulations. The courts often rely upon judicial decisions construing the FLSA regulations and upon the interpretations of the FLSA regulation by the U.S. Department of Labor. The FLSA sets a baseline for states. State minimum wage laws that are more protective of workers than federal law are authorized by the FLSA. Every employer shall pay to each of his employees wages at a rate of not less than $7.25 per hour. New Jersey Minimum Wage Law carves out a few exceptions, such as part-time employees primarily engaged in the care and tending of children in the home of the employer, persons under the age of 18 not possessing a special vocational school graduate permit, or persons employed as salesmen of motor vehicles. However, there is no exceptions for interns or trainees. One notable exception is that Full-time students may be employed by the college or university at which they are enrolled at not less than 85% of the effective minimum wage rate. With regards to overtime pay, both the FLSA and the NJWHL require an employer to pay an employee who works more than forty hours per week at a rate of one-and-one half times the employee’s regular hourly rate for every hour after the fortieth, unless the employer establishes the right to an exemption from the “overtime” obligation based upon the employee’s salary, duties and work. An unpaid intern will rarely, if ever, fit into one of the exemptions. If any employee is paid by an employer less than the minimum fair wage to which such employee is entitled under NJ law, such employee may recover in a civil action the full amount of such minimum wage less any amount actually paid to him or her by the employer together with costs and such reasonable attorney’s fees as may be allowed by the court, and any agreement between an employee and an employer to work for less than such minimum fair wage is no defense to the action. ?An employee is entitled to maintain such action for himself or other employees similarly situated, and such employee and employees may designate an agent or representative to maintain such action on behalf of all employees similarly situated.
3.?? Rights under the NJWHL unwaivable by contract The employment of an employee in any occupation in New Jersey at a wage below minimum wage and/or without overtime compensation, is declared to be contrary to public policy and any contract, agreement or understanding for or in relation to such employment is void and is no defense.
4.?? Am I covered by the NJ Wage and Hour Law? When a Non-Exempt Employee performs work for an Employer, they are required to get paid at least minimum wage and overtime. The basic exemptions are for executive, administrative, and professional employees. Unpaid interns do not fit into these categories because they only apply when the employee is paid a specified minimum per week, which unpaid interns obviously fail to meet. The definitions for employee, employer, and employ are often described as circular in nature, because it is considered by some to be the broadest definition of any term found in the law. An “Employee” includes any individual employed by an employer. To “Employ” includes to suffer or to permit to work. Employer is defined by the NJWHL as “any individual, partnership, association, corporation… acting directly or indirectly in the interest of an employer in relation to an employee.”
5.?? Am I legally an Intern/Trainee or an Employee? The New Jersey Wage and Hour Law, unlike Federal Labor laws, statutorily provides a test for legal unpaid interns. It is more strict than the test created by the U.S. Department of Labor. Employee Test A trainee is exempt from the definition of employee when all of the following are met:
  1. The training is for the primary benefit of the trainee;
  2. The employment for which the trainee is training requires some cognizable trainable skill;
  3. The training is not specific to the employer, that is, is not exclusive to its needs, but may be applicable elsewhere for another employer or in another field of endeavor;
  4. The training, even though it includes actual operation of the facilities of the employer, is similar to that which may be given in a vocational school;
  5. The trainee does not displace a regular employee on a regular job or supplement a regular job, but trains under close tutorial observation;
  6. The employer derives no immediate benefit from the efforts of the trainee and, indeed, on occasion may find his or her regular operation impeded by the trainee;
  7. The trainee is not necessarily entitled to a job at the completion of training;
  8. The training program is sponsored by the employer, is outside regular work hours, the employee does no productive work while attending and the program is not directly related to the employee’s present job (as distinguished from learning another job or additional skill); and
  9. The employer and the trainee share a basic understanding that regular employment wages are not due for the time spent in training, provided that the trainee does not perform any productive work.
Again, if a trainee does not meet all of the above-listed criteria, the trainee is considered an employee. Furthermore, NJ regulations provide an outline of a proper School-To-Work program. It first defines a few terms, then gives the elements of the test. Definitions “Career awareness and exploration” means structured school programs that enable student learners to:
  1. Develop awareness of the many employment opportunities available;
  2. Develop awareness of the relevant factors to be considered in making career decisions;
  3. Become familiar with occupational clusters and classifications;
  4. Explore key occupational areas and assess their own interests and abilities; and
  5. Develop tentative occupational plans and arrive at a tentative career choice.
“Incidental” means any irrelevant, occasional productive work which is not part of achieving learning objectives. “Internship” means a program of study for a student which includes supervised practical training. “Job shadowing” means the process by which a student learner determines (by observation, interview and study) the pertinent information related to an occupation. ?Information can include such factors as: qualifications for employment, functions performed, necessary skills and knowledge, equipment and material used, and physical demands and working environment. School-to-Work Test An acceptable School-to-work program shall meet the following conditions to allow for non-paid activities of student learners at for profit and not-for-profit organizations:
  1. The student shall be at least 16 years of age;
  2. The activity must be related to a formal school-to-work transition plan for a student learner;
  3. There is collaboration and planning between work-site staff and school staff resulting in clearly identified learning objectives related to the non-paid activities;
  4. Any productive work is incidental to achieving learning objectives;
  5. The student learner receives credit for time spent at the work-site and the student is expected to achieve the learning objectives;
  6. The student learner is supervised by a school official and a workplace mentor;
  7. The non-paid activity is of a limited duration, related to an educational purpose and there is no guarantee or expectation that the activity will result in employment; and
  8. The student learner does not replace an employee.

6.?? Am I a Volunteer? The New Jersey Wage and Hour laws do not apply to Volunteers. “Volunteer” means a person who donates his or her service for the protection of the health and safety of the general public. Such a person would include, among others, a volunteer fireman, rescue worker, an aide in the care of the sick, aged, young, mentally ill, destitute and the like or assistant in religious, eleemosynary, educational, hospital, cultural and similar activities. Its worth noting that by definition a person cannot volunteer for a for-profit business, since it is not for a charitable, humanitarian, or civic purpose.
7.?? What is considered “Work”? “Work hours” means the actual hours suffered or permitted to work. “Wages” means any monies due an employee from an employer for services rendered or made available by the employee to the employer as a result of their employment relationship including commissions, bonus and piecework compensation and including any gratuities received by an employer to an employee. All the time the employee is required to be at his or her place of work or on duty shall be counted as hours worked. Employers are not required to pay an employee for hours the employee is not required to be at his or her place of work because of holidays, vacation, lunch hours, illness and similar reasons. When an employee is performing work for the benefit of the employer outside of ones typical work schedule, and the employer has reason to know this, those hours of work are compensable work. When employees are not required to remain on the employer’s premises and are free to engage in their own pursuits, subject only to the understanding that they leave word at their home or with the employer where they may be reached, the hours shall not be considered hours worked. When an employee does go out on an on-call assignment, only the time actually spent in making the call shall be counted as hours worked. But, if calls are so frequent or the “on-call” conditions so restrictive that the employees are not really free to use the intervening periods effectively for their own benefit, they may be considered as “engaged to wait” rather than “waiting to be engaged”. In that event, the waiting time shall be counted as hours worked.
8.?? What if I work for a non-profit? The New Jersey’s Wage and Hour Law make no distinction between for-profit and not-for-profit organizations. But its important to realize that one can volunteer for a non-profit organization when he or she is performing work that directly furthers the charitable, humanitarian, or civic goals. If work is done for a non-profit that competes with other for-profit businesses, that work must be compensated. A person may take that compensation and return it to the non-profit organization in the form of a gift, once it is paid.
9.?? What about the exemptions to the New Jersey Wage and Hour Law? State minimum wage laws that are more protective of workers than federal labor law. Like the FLSA, the NJWHL and its accompanying regulations have several similar categories of exempt employees; executive, administrative, or professional exemptions. Based upon the Legislature’s remedial purpose in enacting a minimum wage law, all exemptions should be construed narrowly and furthermore, the employer has the obligation to prove that an employee meets the criteria for exemption. For these reasons, the burden of proving entitlement to the exemption is on the employer. In addition to the three basic exemptions, some additional specific exemptions from Minimum Wage are enumerated. Some of the additional exemptions that are also exempt from the statutory minimum wage rates are: 1. Full-time students employed by the college or university at which they are enrolled at not less than 85 percent of the minimum wage rate. 2. Outside sales person; 3. Sales person of motor vehicles; 4. Part time employees primarily engaged in the care and tending of children in the home of the employer; 6. At summer camps, conferences and retreats operated by any nonprofit or religious corporation or association during the months of June, July, August and September.
10.?? Are there Statute of Limitations? How long do I have to bring my claim? Yes. There is a two (2) year statute of limitations on claims for unpaid minimum wage and overtime. Unlike the federal law, the NJ state law does not have a three-year period that applied to employer actions that were willful. Except as otherwise provided by law, every employer shall pay the full amount of wages due to his employees at least twice during each calendar month, on regular paydays designated in advance by the employer. Each failure to pay wages is a separate violation, and starts its own statute of limitations clock which begins once the employer has failed to pay the specific wages owed each pay period.
11.?? What damages am I entitled to recover under New Jersey Wage and Hour Law? If any misclassified unpaid intern is not paid at least the minimum fair wage, such employee may recover in a civil action the full amount of such minimum wage less any amount actually paid to him or her by the employer. There is no mention of liquidated damages throughout the New Jersey Wage and Hour Laws and accompanying regulations, however, courts do awarding prejudgment interest at the court’s discretion and it is awarded based on considerations of fairness. Similar to the FLSA, there is a presumption in favor of awarding prejudgment interest on a back pay award. Prejudgment interest attempts to compensate for the delay in receiving the wages as well as offset the reduction in the value of the delayed payments caused by inflation. Though, if a claim for back wages is successful under New Jersey and Federal law, they would be entitled to the federal liquidated damages (double damages), since it allows for a greater recovery. Like Federal law,?New Jersey law also allows for recovery of Attorney’s fees and court costs.
12.?? What about unreimbursed expenses? An employer may not withhold, deduct, or divert any portion of an employee’s wages for breakage, damage/loss of the employer’s property, purchase of required special uniforms or clothing, required tools, or other items necessary to perform his or her employment work. Costs, such as travel from the place of work to another office for work purposes, or travel expenses from the office to another location that is necessary to complete an assigned work task must be reimbursed. Any unlawful deduction, or unreimbursed expenses must be reimbursed under the law.
13.?? What if there is no record of how many hours I worked? An employee’s evidence via testimony of damages connected to the employer’s alleged violation of the New Jersey Wage and Hour Law is often found to be sufficient for a jury to determine damages. Remember, the employer has the burden, since they are required under the law to maintain accurate records of their employees work hours.
14.?? What defenses do Employers have for noncompliance with NJWHL? If an employer pleads and proves that their act or failure to act was in good faith in conformity with and in reliance on any written administrative regulation, order, ruling, by the Commissioner of the Department of Labor and Industry or the Director of the Wage and Hour Bureau, such a defense, if established, shall be a complete bar to the action or proceeding. First and foremost, New Jersey’s good-faith defense, which is stricter than the good-faith defense found in the Federal Law, is clearly unavailable when an employer is not relying on one of the specified sources listed above. The New Jersey good-faith defense requires both that the employer acted in good faith and that it relied on a written regulation, administrative practice, or enforcement policy of the relevant state agency. Furthermore, like the federal good-faith defenses, New Jersey’s law requires good-faith reliance, and courts applying NJ law have held that good faith is absent when the employer fails to investigate a law’s requirements, or simply relies on a longstanding practice (of either the employer itself or its industry) of failing to pay overtime. An employer showing that the act or omission was in simple good faith and that he had reasonable grounds for believing that his act or omission is on it own not a sufficient defense. New Jersey law requires a reliance on an administrative regulation, order, practice, or policy. The fact that an employer has broken the law for a long time without complaints from employees does not demonstrate the requisite good faith required by the statute. The employer must affirmatively establish that he acted in good faith by attempting to ascertain the Act’s requirements.
15.?? What if I was unfairly terminated or retaliated against? New Jersey Labor Laws provide for possible criminal penalties for retaliation against an employee who complains of a violation of the NJ labor laws. Furthermore, under New Jersey’s Conscientious Employee Protection Act (New Jersey’s retaliation law), employers are prohibited from taking any retaliatory action against an employee for reporting or objecting to an activity or practice that he reasonably believes is in violation of a law, rule or regulation, or that is against public policy.

Unpaid Internships: The Great Labor Market Distorter

Economists have spent the last century delving into the macroeconomic effects of wages on the labor market. The supply and demand for labor ?is a key market force that helps best allocate labor resources in the most productive way. When labor is in demand and supply is limited, wages are higher. This can be seen in the high wages doctors and other skilled laborers receive. From the demand side, if a business is inefficient and requires lots of labor to produce a desired product or service, they will be unable to compete in the market place due to high costs and therefore they will charge high prices. A more efficient company will have lower labor costs and therefore they have the ability to charge lower prices.

Almost any business can be competitive and profitable when its labor cost is zero, since there is no financial restrictions on the quantity of labor a business will demand. This allows businesses, that could never be very competitive in the marketplace, to now be artificially and unfairly competitive because of the reduced labor costs. This restricts the flow of needed labor resources to companies and industries where the demand is stronger.

I’m sure the massive increase in supply of labor and decrease in demand for labor in the current recession is a major influence on the increase of unpaid internships, which one statistic shows to have increased 350% since the beginning of the 2008 recession. Unpaid internships ?drive down the demand for non-free labor, and do away with a living wage. Simply put, slaves put paid workers out of jobs.

Unpaid internships distort the labor market signals on a microeconomic level as well. If the thousands of recent graduates from fashion schools did not go into long unpaid internships, the signal would be sent to the future students of fashion schools that there are limited paying job available. But these students do not get these signals, because unpaid internship placements give the illusion that there are more jobs out there than exist. Schools are filling up their classrooms and increasing tuition, while graduates are struggling to find paying work. Its not surprising universities love to promote unpaid internships.

Many students are studying things that can never result in living wages.

Unpaid interns work for months to years with their sights set on future employment that might not actually exist because it would never be profitable but for the free labor.