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Beat the summertime blues: Internships and employment law

May 29, 2015

intern1-1024x645Raise your hand if you’ve ever hired, or worked as, an intern — exchanging labor for nothing but experience, contacts, perhaps some academic credit, and maybe even a small (read, “under the minimum wage”) financial stipend. A business gets a break on employee expense, and a newbie gets a resume boost and “real-world” experience. Great deal for everyone, right?

Wrong. In fact, in most cases, people called “interns” are actually nothing more or less than a garden-variety employee. And the part where the intern gets experience rather than money is a tremendous legal risk for the employer. Because for some reason courts don’t like employers who don’t pay their employees minimum wages, overtime, etc.

Talk about your summertime blues.

True “interns” under the law are actually called trainees. And they must meet six criteria before they will be recognized as a true “trainee” and exempt from federal and state wage and hour laws, rather than an employee.

  1. The training, even though it includes actual operation of the employer’s facilities, is similar to that which would be given in a vocational school;
  2. The training is for the benefit of the trainees or students;
  3. The trainees or students do not displace regular employees, but work under their close observation;
  4. The employer derives no immediate advantage from the activities of trainees or students, and on occasion the employer’s operations may actually be impeded;
  5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and
  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.

These factors are assessed according to the “totality of the circumstances.” No one of the factors is more important, and the particular facts and circumstances are critical to the conclusion. As a result, there is very little predictability about whether a particular trainee is or isn’t an employee. That’s bad for employer certainty, and it’s terrible if litigation results — because that kind of fact-driven analysis virtually ensures a lengthy, risky, and expensive trial.

A few points can be made about these criteria, however — none of them particularly helpful to the employer. First, the “internship” experience has to benefit the trainee, and it has to be sufficiently general that it provides the trainee with experience that will benefit the trainee in other industry-related employment. So learning how to fix a variety of different computer systems may be OK; building or repairing specific components of the employer’s proprietary systems is probably not.

Second, the employer can’t receive any immediate benefit from the trainee’s work. This factor very likely sinks almost all purported “internships.” If an intern is building the widgets or providing the services that are the employer’s stock in trade, the employer is deriving an immediate benefit from her work. That means the trainee is an employee, and has to be paid.

Third, and related, the trainee must not “displace regular employees.” So if an employer is reducing staff at the same time it is hiring “trainees,” it’s probably in trouble. Same problem if the employer is ramping up production and hiring trainees at a disproportionately higher rate than new employees. In fact, an employer may have to show a detriment to employee productivity as a result of hiring a trainee before the trainee will be considered exempt from wage and hour laws.

Fourth, although an “understanding” between employer and intern is part of the test, it is not terribly difficult for a young, unsophisticated, hungry intern to disclaim really knowing all of the rights he or she may be giving up by accepting that unpaid internship. And an employer will find it difficult to prove equal bargaining power under most circumstances.

The consequences of misclassification can be disastrous. In California, minimum wage violations come with liquidated damages that effectively double the employer’s financial exposure. Daily and weekly overtime, civil penalties, and attorneys’ fees — the employer’s and the successful employee’s — add significantly to the potential pain. Don’t think you’ll just be fighting about one or two interns, either. Any misclassification case will probably be brought as a representative or class action, on behalf of all the interns you’ve hired in the past four years. Employee attorneys live for this kind of stuff.

Employers should think long and hard about hiring unpaid or underpaid interns. And they should definitely talk to their attorneys first. Far better to bring them in as employees if you need people to do the work, and leave the education to the colleges and vocational schools if you don’t. Anything you save in wage cost will be dwarfed by even a single complaint.

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