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Are Interns A Good Idea?

By Kim Kennedy

Does your business use interns? Are you thinking of hiring an intern or two in the near future? The economy is still struggling, and hiring more employees is a significant expense in payroll costs, as well as in other costs such as health insurance, and training. There are hordes of unemployed recent college graduates who have found the job market unfriendly, and are willing to spend time interning in order to bulk up their resumes. Although internships are typically unpaid, interns gain valuable skills and experience, which will make them more competitive candidates when they enter the job market again.

Sounds good, right?  Well, maybe. Firstly, remember that unless you are a non-profit, your intern is not a volunteer. If you run a for-profit business (even if you are not profitable), you may not utilize the services of volunteers under the Fair Labor Standards Act (“FLSA”).  So what is the difference between a volunteer and an intern, or an employee?

The FLSA states that to “employ” means to “suffer or permit to work.”  However, the Supreme Court in Walling v. Portland Terminal  Co., 330 U.S. 148, 152 (1947), observed that this definition “was obviously not intended to stamp all persons as employees who, without any express or implied compensation agreement, might work for their own advantage on the premises of another.” Based on Portland Terminal, the Wage and Hour Division (“WHD”) has developed six factors to evaluate whether a trainee, intern, extern, apprentice, graduate assistant, or similar individual is to be considered an employee.

1. 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;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. 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;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If any of these criteria do not apply, the individual is considered an employee, not an intern. The fourth factor states plainly, “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.” Maybe that intern does not sound like such a good deal anymore!

The worst result for your business would be if an “intern” who did not meet these criteria sued you for violations of wage and hour laws. Last fall, two unpaid interns who worked on the movie Black Swan filed a complaint against Fox Searchlight Pictures. The suit is awaiting a hearing at a federal court in New York. Two weeks ago, a former intern filed suit against Hearst Corp., Harper Bazaar’s parent company, for failing to pay minimum and overtime wages during her internship with that magazine. Her counsel has indicated that they intend to turn the case into a class-action lawsuit, representing other unpaid interns form Hearst Corp.’s many magazines.

In California, penalties for not paying someone can be ruinous – up to thirty days’ pay for each paycheck that should have been paid. If you usually pay twice a month, that effectively triples the amount the intern would have earned. There are also penalties for back payment of state and federal taxes, as well.

Make sure your relationships with employees, interns, independent contractors, and whoever else is involved with your business are well-defined to avoid this type of liability in the future.

Kim Kennedy is a paralegal with Bay Oak Law.

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