Intern or Employee: What's In A Name?

By Kyle Hendrickson, Esq.

Internships are an important step in a professional's development, providing mentoring opportunities to successful employees and introducing promising new practitioners to the field. However, the issue of whether such internships must be paid or can be unpaid is often surrounded by confusion. The answer to this confusion can be found in the federal Fair Labor Standards Act (FLSA)¹.

With certain exceptions, any person who is "employed" is covered by the FLSA. A covered employee under the FLSA is entitled to receive at least the federal minimum wage and overtime compensation for time worked over forty hours in a single workweek. Generally, determining whether a person is employed within the meaning of the FLSA is a straightforward task. When it comes to internships, however, the determination is not so cut and dry.

The FLSA defines "employed" very broadly to mean "suffer[ed] or permit[ted] to work." However, the Supreme Court of the United States has held that "employed" under the FLSA "cannot be interpreted so as to make a person whose work serves only his own interest an employee of another person who gives him aid and instruction." ² Determining whether an individual's work serves only the individual's own interests, and therefore qualifies as an internship, depends upon the facts and circumstances of each individual situation. More importantly, the Department of Labor has established the following six criteria³ that must be met before work can be called an internship.

EDUCATIONAL ENVIRONMENT

According to the Department of Labor, the first criterion that must be met is that the training received by the individual is similar to the training that would be received by the individual in an educational environment. Generally, under this criterion, the more the work performed by the intern is focused upon the educational experience of the intern, the more likely the work will be considered an internship. As such, although not required, the work is more likely to be considered an internship if the individual comes to the position through an established educational or other training institution.

BENEFIT OF THE INTERN

The second criterion is that the internship be primarily for the benefit of the individual. Under this criterion, if the work provides the individual the opportunity to learn general, transferable skills as opposed to job specific or employer specific skills, the work is more likely to be considered an internship. In essence, according to the Department of Labor, "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."

SUPERVISION

The third criterion is that the individual works under close supervision without displacing regular employees. If an individual is used to supplement or as a substitute for an employer's regular workforce or is provided little or no supervision, the work is not likely to be considered an internship. However, to the extent an individual is provided with an opportunity to learn under "close and constant" supervision while performing minimal or no work for the firm, the work is more likely to be considered an internship.

BENEFIT TO THE EMPLOYER

The fourth criterion is that the employer that provides the training must not derive any immediate benefit from the activities of the intern. Indeed, under this criterion, to the extent that the employer's activities are actually impeded by the individual, the more likely the work will be considered an internship.

JOB ENTITLEMENT

The fifth criterion is that the individual is "not necessarily" entitled to a job at the conclusion of the individual's work. As the Department of Labor makes clear, an "internship should be of a fixed duration, established prior to the outset of the internship." If an employer is using the internship as a trial period before employment, the work is really not an internship.

UNDERSTANDING OF INTERNSHIP

The sixth and final criterion established by the Department of Labor is that the employer and the individual understand that the intern will not be paid for the time worked.

If all six of these criteria are met, the work is likely to be considered an internship and, therefore, outside of the FLSA. While it may appear to be a straightforward task, determining whether each of the above, six factors has been met may not be so simple in practice.

To avoid any potential confusion, firms should consider several strategies to ensure that an individual is properly classified as an intern. First, although not a requirement, conducting an internship program through a school or an educational program is an easy step to take towards ensuring that an individual is properly treated as intern. Second, much of the confusion surrounding internships can be resolved by discussing the goals and understandings of each party prior to the internship. In particular, the firm and intern should explicitly discuss that the internship is unpaid. Similarly, the firm and intern should discuss that, even if job offers are sometimes extended upon completion of the internship, the purpose of the internship is not to evaluate the intern as a prospective employee, but to provide the intern with an opportunity to learn. Third, and in that same vein, the intern must be provided with an opportunity to learn and develop his or her skills under close and constant supervision. While these steps will not guarantee that an individual will be considered an intern who may be unpaid in accordance with the FLSA and Department of Labor guidelines, following these strategies will enable firms to considerably reduce the confusion regarding whether an intern is entitled to payment for his or her work.

The above article is an overview only, and should not be considered legal advice, which is dependent upon specific facts and circumstances. For more information, please contact Michael S. Zetlin or Kyle Hendrickson at 212.682.6800.

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OCTOBER 2010