What Businesses Should Have in Place Before Hiring Unpaid Interns

I am sure that you are expecting this, but an Internship Agreement.

True story time:

Yesterday (no exaggeration) a client sent me an email in a panic because a seasonal intern had submitted for unemployment. They had received the Notice of Unemployment Insurance Claim Filed and did not know how to respond. But they created their internship on a strong legal foundation and had a signed Internship Agreement from the former intern. A copy of this letter was the perfect evidence to include in their response and made the situation of their relationship with the student in question clear.

While paid internships are becoming more common these days, college students and recent graduates are often willing to work as unpaid interns in exchange for gaining valuable professional experience and college credit. Similarly, job applicants may be willing to participate in unpaid training programs required by their prospective employer to gain marketable skills and find work. Intern and trainee relationships can be mutually beneficial, but employers still must either:

Comply with the requirements under the Fair Labor Standards Act (FLSA), which include compliance with your state’s minimum wage, overtime pay, and paid sick leave.

OR

Ensure all unpaid (even if they are receiving college credit) interns and trainees are not classified as “employees: for purposes of the FLSA.

Here’s how you test whether or not your intern is an employee under the FLSA:

Test for Employee Status of Unpaid Interns Under the FLSA aka “Primary Beneficiary Test”. There are five factors that determine whether or not an intern is an employee. None of the seven are dispositive and none preclude consideration of other factors.

  1. The intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The risk is not worth it, so be sure your business has an Internship Agreement in place. If you cannot demonstrate your business’s compliance with the FLSA you (unlike my client) could risk the following:

Back pay
Liquidated damages
Punitive damages
Interest
Attorneys’ fees and costs of the other party
Taxes not withheld
Benefits not provided (health, 401k, etc.)
Workers’ compensation contributions or, if the individual sustains a compensable injury unemployment insurance and benefits

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4/11/2022

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What Businesses Should Have in Place Before Hiring Unpaid Interns

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