(Published in New Hampshire Business Review, May 2010)
Q. Acme Corp., a mid-sized manufacturing company, has recently laid off half of its marketing staff in order to cut costs due to the downturn in the economy. There is still a lot of work to do to keep the department running, but the company simply cannot afford the salary and benefits. Acme’s President is thinking of taking on a couple of unpaid marketing interns to pick up the slack.
Jane is an experienced marketing professional who was laid off from her job at XYZ Co. almost a year ago. She has tried everything she can think of to find a new job, and she has exhausted all of her options. At this point, she would even consider working for a company for free to keep her skills sharp, make some connections and “get her foot in the door” with a potential employer.
Sounds like a match made in heaven, right?
A. Probably not. It is unlikely that Acme Corp. would be able to take Jane on as an unpaid intern and still be in compliance with state and federal minimum wage and overtime pay laws.
Although recent news reports suggest that the economy may be bouncing back, unemployment is still high. Employers who have had to lay off employees are looking for ways to keep costs down while functioning with fewer employees. Job seekers, many of whom have been out of work for an extended amount of time, are willing to try just about anything to get experience and to try to get an “in” with employers. These factors have led to a dramatic increase in the number of unpaid “interns” working for free at for-profit businesses. And these interns are not just high-school and college students putting in a few hours at a business in exchange for experience and course credit. An increasing number of recent college graduates unable to find entry-level jobs, and even laid-off mid-career professionals, are finding themselves in unpaid internships.
These internships may seems like a win-win for the employers and the interns—the employer gets free labor and the intern gets experience and connections—but, in many cases, they violate state and federal minimum-wage and overtime laws. And while the interns themselves are generally unwilling to blow the whistle, for fear of alienating employers and hurting their chances of future employment, state and federal authorities have stepped up their enforcement of wage and hour laws through increased audits and education of employers on the legal requirements of internships.
Nancy J. Leppink, Acting Director of the U.S. Department of Labor’s Wage and Hour Division, recently told The New York Times: “If you’re a for-profit employer or you want to pursue an internship with a for-profit employer, there aren’t going to be many circumstances where you can have an internship and still be in compliance with the law.” That is because the Fair Labor Standards Act (FLSA) includes a very broad definition of the term “employee,” which encompasses many “interns” working at for-profit businesses. Employers must observe minimum wage and overtime laws for all persons fitting the description of “employee,” even if they are called “interns.”
In order for a worker at a for-profit business to qualify as an intern, and therefore be exempt from the requirements of the FLSA, all of the following six criteria, as stated by the Department of Labor, must be met:
- The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and the employer; and
- The intern understand that the intern is not entitled to wages for the time spent in the internship.
Some critics complain that these factors—which were developed by the Department of Labor following a 1947 Supreme Court case involving railroad brakemen who did not receive pay during a training period—are outdated. But unless the guidelines are changed, for-profit businesses must observe them in order to comply with the law. (The requirements are less stringent for non-profit entities.)
New Hampshire state law is similar to federal law in the restrictions it places on unpaid internships at for-profit businesses. In fact, State regulations reference Department of Labor rules in the definition of who qualifies as an exempt “volunteer” under New Hampshire’s minimum wage law. State law also prohibits employers and non-exempt employees from agreeing to any arrangement where the employee will be paid less than minimum wage.
It is unlikely that Jane would be exempt from state or federal minimum wage and overtime laws if she went to work as an unpaid intern in Acme’s marketing department. Based on the facts presented, it appears that Jane would be displacing regular employees and that Acme would derive an immediate advantage from her efforts. It is unclear that the internship would be similar to training given in an educational environment. And while there is nothing to suggest that Jane would be entitled to a job at the conclusion of the internship, it is clear that is her goal.
Adam Hamel is an Associate in the Employment Law Practice Group of McLane, Graf, Raulerson & Middleton, Professional Association. Adam can be reached at 628-1189 or [email protected]. The McLane Law Firm is the largest law firm in the State of New Hampshire, with offices in Concord, Manchester, Portsmouth and Woburn, Massachusetts.