Unpaid Interns and Federal Labor Laws

Unpaid Interns and Federal Labor Laws

Below is a general summary of the federal labor laws as they apply to interns. The information contained in this site is for informational purposes only. The application and impact of laws can vary based on the specific facts involved. This is not legal advice. Contact a lawyer for legal advice.

  1. Objectives of the Fair Labor Standards Act (FLSA)
  2. FLSA Basics
  3. Rights under FLSA unwaivable by contract
  4. Am I covered by the FLSA?
  5. How do courts deal with classifying unpaid interns vs. workers (employee, independent contractor, or volunteer)?
  6. Am I legally an Intern/Trainee?
  7. Am I a Volunteer?
  8. Who is considered an Employee?
  9. What is considered “Work”?
  10. What if I work for a non-profit?
  11. What about the exemptions to the FLSA?
  12. Is there a Statute of Limitations? How long do I have to bring my claim?
  13. What damages am I entitled to recover under Federal Law?
  14. What are Liquidated Damages?
  15. What if there is no record of how many hours I worked?
  16. What if I fear my employer retaliating against me?

1. Objectives of the Fair Labor Standards Act (FLSA)

Federal law protects an employee’s right to minimum wage and overtime under the Fair Labor Standards Act (FLSA). The FLSA was created by Congress in 1938 to eliminate the existence of labor conditions detrimental to workers’ ability to maintain the minimum standard of living necessary for health, efficiency, and general well-being.

President Roosevelt explained prior to passing the FLSA, “[t]he FLSA was designed to give specific minimum protections to individual workers and to ensure that each employee covered by the Act would receive ‘[a] fair day’s pay for a fair day’s work’ and would be protected from ‘the evil of ‘overwork’ as well as ‘underpay.’”

As the primary means of achieving these objectives, the FLSA mandated a fixed, fair minimum wage and a reasonable workweek for workers, a move that was particularly important in situations where workers did not have sufficient bargaining power to achieve fair working conditions and collective agreements. Because the FLSA is primarily a piece of remedial legislation, serving societal interests, courts have consistently held that it “must not be interpreted or applied in a narrow, grudging manner,” but rather as broadly as possible to most effectively achieve the underlying social objectives.

2. FLSA Basics

Every employer must pay every employee engaged in commerce the current federal minimum wage and overtime rate (or the state’s current minimum wage, if higher). Overtime, is a rate not less than 1 1/2 times the regular rate for a workweek longer than 40 hours.

One minor exception is for newly hired employees who are less than 20 years old. They may be paid during the first 90 consecutive calendar days a wage which is not less than $4.25 an hour.

Therefore, if an unpaid intern is an employee under the law they must be paid minimum wage and overtime. If an unpaid intern is not an employee, then they do not have to be paid.

3. Rights under FLSA unwaivable by contract

Courts have consistently held that covered employees are unable to waive their rights to the minimum wage and overtime protections granted under the FLSA, and that any such waiver is void as against public policy. Allowing FLSA rights to be waived by agreement would nullify one of the primary purposes for enacting the statute which was to protect certain basic employee rights from being violated by employers who are often in more powerful bargaining positions.

The purposes of the FLSA require that it be applied even to those who would decline its protections. If an exception to the Act were carved out for employees willing to work “voluntarily,” employers might be able to use superior bargaining power to coerce employees to make such assertions, or to waive their protections under the Act.

Exceptions to minimum wage coverage would affect many more people than those workers directly at issue and would be likely to exert a general downward pressure on wages in competing businesses.

4. Am I covered by the FLSA?
The FLSA only applies to employees. Courts have distinguished employees from other types of workers, such as independent contractors or volunteers. As interns and trainees (in legitimate internship/training programs) are seen not seen as workers, the laws don’t speak to them. Labor laws don’t apply to legal interns because they by definition do not perform beneficial work for the employer.

But it is not up to employers to label a person an intern or employee. A fact specific analysis will determine the legal category the person falls into.

When it comes to unpaid interns, the main issue is whether the person is a learner/student or a worker. Once classified as a worker, a quick analysis can be performed to determine if the worker is an employee, who then falls under the minimum wage coverage of the FLSA.

5. How do courts deal with classifying unpaid interns vs. workers (employee, independent contractor, or volunteer)?

Courts have dealt with the issue of misclassifying employees for decades, but until recently, have not really had to deal with distinguishing employees from unpaid interns. In April 2010, the U.S. Department of Labor released a Fact Sheet outlining the requirements a legal unpaid internship must meet in order to legally be unpaid.

The federal courts have not agreed upon the correct test to use when determining employment status of a trainee or intern. As a result, three tests have arisen among the federal circuits: (1) the “immediate” or “primary benefit” test; (2) requiring employers meet all the Department of Labor’s 6-factors enumerated in their Fact Sheet, and; (3) a totality of the circumstances analysis of the DOL 6-factor test. [Question #6 below will give a brief overview of the Department of Labors 6-factor test.]

6. Am I an Intern/Trainee?

The seminal case addressing whether interns/trainees are employees entitled to the protections of the FLSA is Walling v. Portland Terminal Co., 330 U.S. 148 (1947). In Portland Terminal, a railroad company, gave prospective brakemen a practical course of training that typically lasted seven or eight days. The Supreme court found that the trainees did not displace any of the regular employees. Nor did their work expedite the railroad’s business. At times, it actually impeded its business because, in addition to their normal duties, the regular employees had to closely supervise the trainees. The trainees did not receive compensation during their 7-8 day training period other than a retroactive $4.00 per day allowance, contingent upon successful completion of the training.

The Supreme Court held that the trainees were not employees within the meaning of the FLSA, and therefore were not entitled to be paid minimum wage. It was from this Supreme Court analysis that the Department of Labor based it six-factor test.

The Department of Labor Six-Factor Test

After Portland Terminal, the U.S. Department of Labor – Wage and Hour Division identified six criteria in its Fact Sheet #71 to determine whether an intern/trainee is an “employee” for purposes of the FLSA. The Department of Labor’s longstanding position is that all six criteria must apply before the agency will consider that a trainee/intern is not an employee for purposes of the FLSA.

The six factors of the Department of Labor test are:

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

In general, 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 individuals educational experience (this often occurs where a college or university exercises oversight over the internship program and provides educational credit). The more the internship provides the individual with skills that can be used in multiple employment settings, as opposed to skills particular to one employer’s operation, the more likely the intern would be viewed as receiving training. Under these circumstances the intern does not perform the routine work of the business on a regular and recurring basis, and the business is not dependent upon the work of the intern.

So, for example, the student’s placement should be career oriented, and not in an occupation for which no lengthy observation or training is required, like in janitorial work, flipping hamburgers, or answering phones. Furthermore, vocational education also is based on progressive learning, which requires students to learn new things based on skills and knowledge learned previously. Trainees who repeatedly perform the same tasks as employees do, would be entitled to be paid for that time. Training that constitutes a very limited and narrow kind of learning (e.g. using employers unique filing system) does not rise to the level that one would receive in a “general vocational course.”

(2) the training is for the benefit of the trainees or students;

If the interns are engaged in the operations of the employer or are performing productive work (for example, filing, performing other clerical work, or assisting customers), then the fact that they may be receiving some benefits in the form of a new skill or improved work habits will not exclude them from the FLSA’s minimum wage and overtime requirements because the employer benefits from the interns’ work.

When an employer is able to provide its services at below-market rates, it receives a “greater advantage” from the participants’ work.

(3) the trainees or students do not displace regular employees, but work under their close observation;

If an employer uses interns as substitutes for regular workers or to augment its existing workforce during specific time periods, these interns must be paid at least minimum wage. If an employer would have hired additional employees or required existing staff to work additional hours had the interns not performed the work, then the interns will be viewed as employees and entitled to compensation under the FLSA.

If the employer is providing job shadowing opportunities that allow an intern to learn certain functions under the close and constant supervision of regular employees, but the intern performs minimal work, the activity is more likely to be viewed as a bona fide educational experience. Conversely, if the intern receives the same level of supervision as the employer’s regular workforce, this would suggest an employment relationship, rather than training.

The relevant inquiry under this factor, however, is whether a students’ work actually eliminated the need for employees to work additional hours or the need to hire additional employees. The U.S. Department of Labor has stated that “the placement of the trainee at a work site during the learning experience must not result in the displacement of any regular employee — i.e., the presence of the trainee at the work site cannot result in an employee being laid off, cannot result in the employer not hiring an employee it would otherwise hire, and cannot result in an employee working fewer hours than he or she would otherwise work.

One Court held that the individuals in question were not trainees but employees under the FLSA, because the participants received direct supervision only for the first few days, thereafter, other than periodic short visits from shift or field supervisors once or twice each shift, they were left alone.

(4) the employer that provides the training derives no immediate advantage from the activities of the trainees or students; and on occasion his operations may actually be impeded;

When a trainee receives direct and ongoing supervision, any productive work performed by the trainee will be offset by the employer’s burden of training and supervising the trainee. When an intern works independently, and are counted on to contribute work on a daily basis to keep the institution operational, their productive work is not offset by the necessity to supervise them.

(5) the trainees or students are not necessarily entitled to a job at the conclusion of the training period; and

The internship should be of a fixed duration established prior to the outset of the internship. Further, unpaid internships should not be used by the employer as a trial period for individuals seeking employment at the conclusion of the internship period. If an intern is placed with the employer for a trial period with the expectation that he or she will then be hired on a permanent basis, that individual generally would be considered an employee under the FLSA.

When an employer cannot distinguish between unpaid interns and paid employees who were previously interns, and where sometimes interns came to work for the employer, an inference can be drawn that interns were performing the same working that they were seeking to get paid to perform after the internship was over.

(6) the employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

Any sort of compensation related to the amount of work performed should defeat any argument that the intern is a trainee.

Courts have taken several different approaches with regard to the DOL’s six-factor test when distinguishing between employees and interns. Some courts, have applied the test as strictly promulgated by the DOL, requiring that, unless all six criteria are met, an intern is an employee covered by the FLSA. In such jurisdictions, if an internship program fails to meet any one criteria (if, for instance, the employer derives an immediate benefit from the activities of the intern), that intern would be a covered employee entitled to minimum wage. Several courts have taken a “totality of the circumstances” approach to the test, looking at the presence or absence of any of the six criteria in totality. Although slightly more forgiving than the “all or nothing” approach of the DOL, this approach is nonetheless still quite strict, and only allows unpaid internships that sufficiently meet the intent of the six-factor test, i.e., where unpaid interns are receiving a very educational experience (deriving educational benefit in the way one does in school, with hands-on training and supervision), and are not merely unpaid workers. Still other courts have approached the DOL test as a “primary beneficiary” test, focusing largely on which party – the employer or the purported intern – receives the primary benefit of the work performed. By focusing on the benefits flowing to each party, the test seeks to capture the distinction the FLSA attempts to make between trainees and workers.

7. Am I a Volunteer?

Individuals may work for charitable, civic or religious nonprofit enterprises without expectation of compensation and be considered a “volunteer” not included in the definition of “employee” subject to the requirements of the Act. Such activities have been described as “ordinary volunteerism.” Tony and Susan Alamo Foundation v. Secretary of Labor, 471 U.S. 290, 303 (1985). In determining whether a particular activity involves “ordinary volunteerism,” the Department considers a variety of factors, including the nature of the entity receiving the services, the receipt by the worker (or expectation thereof) of any benefits from those for whom the services are performed, whether the activity is less than a full-time occupation, whether regular employees are displaced, whether the services are offered freely without pressure or coercion, and whether the services are of the kind typically associated with volunteer work. See July 2001 US Department of Labor Opinion.

So, in order to qualify as a “volunteer” under the federal law, an individual must satisfy two requirements: the individual must be performing services “for civic, charitable, or humanitarian reasons,” and the individual must be providing those services “without promise, expectation, or receipt of compensation for services rendered.” Therefore, one can never volunteer for a for-profit business.

8. Who is considered an Employee?

The Court begins from the premise that the terms “independent contractor,” “employee,” and “volunteer” are intended to be both comprehensive and mutually exclusive for purposes of applying the FLSA; that is, an individual who provides services for an agency must fall into one, and only one, of these categories. There is no category for “quasi-volunteer” or “semi-employee.”

“The definitions of “employee” and “employer” in the federal statute are notoriously circular. The term “employee” means “any individual employed by an employer.” To figure out when an employer has employed an employee, we look to the term “employ” and find that it is defined as “to suffer or permit to work.” This definition was considered by Supreme Court Justice Hugo Black as the broadest definition ever known in any act. Because of the vague definitions given in the FLSA, Courts have used the various tests described above to help make this determination.

9. What is considered “Work”?

The act contains no definition of “work”, but the Courts have over the years defined it.

In the absence of a legislative definition, the Supreme Court interpreted work “as meaning physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and his business.” Subsequently, the Court ruled that there need be no exertion at all and that all hours are hours that the employee is required to give his employer. Furthermore, an employer, if he chooses, may hire a man to do nothing, or to do nothing but wait for something to happen.

Work not requested but suffered or permitted is work time. For example, an employee may voluntarily continue to work at the end of the shift. An employee may desire to finish an assigned task or he may wish to correct errors, prepare time reports or other records. The reason is immaterial. When the employer knows or has reason to believe that the employee is continuing to work, the time is working time.

In brief, an activity “is employment under the Act if it is done at least in part for the benefit of the employer, even though it may also be beneficial to the employee.” By contrast, for an activity to be non-compensable, “no benefit may inure to the Company.”

10. What if I work for a non-profit?

If you are a volunteer for the non-profit, then the non-profit does not have to pay you. Numerous courts have held that non-profit agencies are not covered by the FLSA unless it is shown that the non-profit organization engages in commercial activities in competition with other commercial enterprises. (http://www.law.cornell.edu/supremecourt/text/471/290)

The focus of the court’s inquiry is whether the non-profit agency is primarily engaged in competition in the public with ordinary commercial enterprises. So, if an unpaid intern is involved in the non-profits activities which do compete with other commercial ventures (e.g. sell clothing to raise money for their other operations), they cannot be considered to have volunteered for charitable, civic, or humanitarian objectives, and therefore must be paid.

11. What about the exemptions to the FLSA?

The FLSA and its accompanying regulations have several categories of exempt employees; executive, administrative, or professional exemptions. While these exemptions are difficult to meet after going through a detailed fact specific analysis, the analysis is very simple when it comes to unpaid interns. To qualify as exempt under the executive, administrative, or professional exemptions, employees generally must, in addition to meeting the primary duty tests, be paid on a salary or fee basis and receive compensation of at least $455 per week. Since unpaid interns are not paid anything, there is little way for an unpaid intern to be exempt from the FLSA.

12. Is there a Statute of Limitations? How long do I have to bring my claim?

An action may be commenced within two years after the cause of action accrued, except it may be commenced within three years if an action arises out of a willful violation of the law. Employees have the burden of showing that 3 years should apply.

The Supreme Court has recognized a willful violation of the Act when, “the employer either knew or showed reckless disregard for the matter of whether its conduct was prohibited by statute.” Willfulness has also been found to be synonymous with the terms “voluntary,” “deliberate,” and “intentional.”

Courts have found that the Statute of Limitations should be extended to 3 years when an employer expressed doubts that it was not in compliance with the law, but then chose to “hush it up.”

It’s worth noting that the statute of limitation continues to run until a lawsuit is filed in court. Additionally, each week that an employer fails to pay the required minimum wage and overtime constitutes a separate action. So, for example, assuming a 2 year statute of limitations apply in a particular case, but you started your year long unpaid internship 2 ½ years ago, you would be entitled to recover for the 6 months that still fall within the 2 years.

13. What damages am I entitled to under Federal Law?

Any employer who violates the FLSA must pay the amount of their unpaid minimum wages and overtime compensation, and an additional equal amount as liquidated damages.

Minimum wage = $7.25 an hour

Overtime = $10.88 an hour

Liquidated damages = an additional amount equal to the unpaid minimum wage & overtime wages, are often awarded in order to compensate the employee because of the financial burden imposed on the employee and as interest the employee would have been able to get if they were properly paid on time.

Additionally, if a judgment is rendered against an employer, the employee can also receive reasonable attorney’s fee to be paid by the defendant, and an additional amount for the costs of bringing the action.

Furthermore, unreimbursed expenses incurred for the benefit and convenience of an employer, may be considered unlawful deductions under the law.

14. What are these Liquidated Damages?

Liquidated Damages are intended to compensate employees for the losses they may have suffered by reason of not receiving their proper wages at the time they were due. Liquidated damages, also known as “double damages”, are the norm, while single damages are the exception.

For example, if an employee failed to receive minimum wage and was underpaid by $5,000. He is entitled to liquidated damages, bringing the total recovery at $10,000.

Liquidated damages can never be waived and any contract that purports to waive such a right is seen as void and contrary to public policy.

To avoid liability for liquidated damages, an employer must make a showing of good faith and provide reasonable grounds for its conduct. The good faith requirement is a subjective one that “requires that the employer have an honest intention to ascertain and follow the dictates of the FLSA.” Courts have found that “ignorance alone will not exonerate the employer under the objective reasonableness test…” Furthermore, to carry its burden, a employer must show that they took affirmative steps to ascertain the Act’s requirements, but nonetheless, violated its provisions. If the employer fails to carry its burden of demonstrating good faith and reasonable grounds, the award of liquidated damages is mandatory.

15. What if there is no record of how many hours I worked?

An employee bringing suit for unpaid minimum wages and unpaid overtime compensation only bears the limited burden of proving by a preponderance of the evidence that he or she performed any work for which he or she was not properly compensated.

It is the employer that now bears the burden showing how many hours were worked. Employers are required to maintained proper and adequate records of every employee’s hours of work. Where an employer has failed to keep adequate records, as required by the law, the employee just has to produce sufficient evidence to show the “amount and extent of that work as a matter of just and reasonable inference.” The district court will “estimate and fashion a reasonable remedy that restores as fully as possible the employees covered by FLSA who were improperly denied compensation” even where the records are deficient.

16. What if I fear my employer retaliating against me?

Federal law protects employees from retaliation if they ask to get paid for their work during illegally unpaid internship. It is a violation of federal law for any employer to retaliate against an employee by discharging or in any other manner discriminating against any employee because such employee has filed any complaint, caused to be instituted any proceeding, or testified about a perceived violation.

Employees are protected regardless of whether the complaint is made orally or in writing. Employers that discriminate or retaliate against an employee who files an FLSA complaint or participates in resulting proceedings, are liable for fines, damages, attorney’s fees and, in the case of willful violations, liquidated damages (an amount equal to the improperly withheld wages).

In addition to federal protections, many states have additional more comprehensive protections against retaliation.

Nothing on this website implies any legal advice is being given. There is no legal relationship between the reader and anyone at internlaw.com.  Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in information contained in this site. Consultation with professional legal counsel if you have legal questions.