The Unpaid Intern:
Liability for the Uninformed Employer
Presented to the American Bar Association
Section of Labor and Employment Law
ERR Committee Midwinter Meeting
Miami Florida
Saturday, March 23, 2013
Stephen A. Mazurak,
Professor of Law
University of Detroit Mercy
School of Law
651 E. Jefferson Ave.
Detroit, Michigan 48226
(313) 596-0233
[email protected]

The author wishes to thank Mr. Benjamin Dacin, Class of 2013, for his research on this article. Mr.
Dacin was a paid work-study student for this project.
The Unpaid Intern: Liability for the Uninformed Employer
Anyone who is an aficionado of late night television the last several years knows
“Ross, the intern” or “Jay, the intern,” and has been regaled with their antics performing
demeaning task for their employers without the benefit of compensation. At the more
traditional level, it is common-place to hear about the use of interns in many businesses
ranging from private employers, government employers and not-for-profit organizations.
A Sunday morning news show highlighted the use of unpaid interns in various
businesses, both public and private, including its own network, which that summer used
75 summer interns paying only a $50 per week stipend for their services.1 One author
has estimated that between one and two million persons participate in internships in the
United States each year.2 This explosion in the use of unpaid interns has not gone
unnoticed by the United States Department of Labor. In April of 2010 it issued its Fact
Sheet #71: entitled “Internship Programs Under The Fair Labor Standards Act.”3
The purpose of this article is to examine a very limited aspect of this
phenomenon; the unpaid intern working at a for-profit entity otherwise covered by the
minimum wage and maximum hours provisions of the Fair Labor Standards Act.4
Excluded from this examination are unpaid interns who work for public agencies as
volunteers or, in the usual situation, where the individual works for nonprofit employers
as a volunteer.5 While these two categories of employers are broad, and there are certain
exceptions in particular cases, a detail examination of these exceptions is beyond the
scope of this article.
Also excluded from this discussion is the intern who is paid at least minimum
wages. The focus of this article is narrow. The discussion will involve only those interns
who are not paid at least minimum wage for their service to their for-profit employer for
the time they are employed. First, there will be an examination of the six criteria that the
1
Sunday Mornings, August 14, 2011, Internships: A foot in the door?, http://www.cbsnews.com/21023445_162-20092149.html?tag=contentMain;contentBody [hereinafter “Sunday Mornings”].
2
Ross Perlin, Intern Nation, Verso Publ. at page XIV (2011)[hereinafter “Perlin, Intern Nation.”]. For
another comprehensive examination of student interns see David Yamada, The Employment Rights of
Student Interns, 35 Conn. L. Rev. 215 (2002).
3
For a copy of Fact Sheet #71, see the Appendix, attached hereto, or acess it at:
http://www.dol.gov/whd/regs/compliance/whdfs71.htm.
4
5
29 U.S.C. §§206-207 (2006 ed. and Supp. IV).
29 U.S.C. §203(e)(4)(A). Volunteers are discussed at 29 C.F.R. §§553.100 et seq. See also the
discussion of these two types of employers in Anthony Tucci, Worthy Exceptions? Examining How the
DOL Should Apply the FLSA to Unpaid Interns at Nonprofits and Public Employers, 97 Iowa L. Rev.
1363, 1370-74 (2012)[hereinafter “Tucci Article”]. The Tucci Article contains an extensive background
and references to the issues herein covered. For an inclusive examination of all areas of the FLSA, see
generally ABA, The Fair Labor Standards Act, Vols.1 and II (2nd Ed. BNA 2010)(prepared and edited by
members of the FLS Legislation Committee of the ABA Section of Labor and Employment law).
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DOL applies in determining whether a for-profit employer need not pay the intern at least
the minimum wage for the time performing the internship. Several important cases in the
area then will be reviewed and discussed. Next, the use of unpaid legal interns working
for private law firms and corporations will be examined. A brief discussion of the legal
standards of Economic Reality and Primary Benefits will ensue in an attempt to clarify
the applicable standard of application of the legal principles. Finally, a brief examination
of the penalties and damages that may be imposed upon an employer who is required to,
but does not pay, the intern at or above the minimum wage, will be conducted.
FACT SHEET #71
The DOL advises that Fact Sheet #71 “provides general information to help
determine whether interns must be paid the minimum wage and overtime under the Fair
Labor Standards Act for the services that they provide to ‘for-profit’ private sector
employers.” It recognizes “there are some circumstances under which individuals who
participate in ‘for-profit’ private sector internships or training programs may do so
without compensation.” But these circumstances are limited and restrictive. To meet the
DOL’s determination that the internship may be without compensation six criteria must
be met:
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.
The DOL recognizes, in a footnote, that governmental and non-profit employers
are usually not subject to these restrictions stating:
The FLSA makes a special exception under certain circumstances for individuals
who volunteer to perform services for a state or local government agency and for
individuals who volunteer for humanitarian purposes for private non-profit food
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banks. WHD also recognizes an exception for individuals who volunteer their
time, freely and without anticipation of compensation for religious, charitable,
civic, or humanitarian purposes to non-profit organizations. Unpaid internships in
the public sector and for non-profit charitable organizations, where the intern
volunteers without expectation of compensation, are generally permissible. WHD
is reviewing the need for additional guidance on internships in the public and nonprofit sectors.6
Application of the six criteria in some instances are straight-forward, while in
other instances are complex and convoluted. For instance, criteria five and six are not
difficult to discern or apply; the intern and employer agree that there will be no
compensation and no promise of a future job. Such understandings can be easily reduced
to writing with both parties signing such a document. Other criteria, such as items three
and four, can be difficult to establish and the subject of much argument and conjecture.
Two examples should suffice to illustrate the problem.
Most schools of nursing have requirements that their students work in various
health care facilities outside of the confines of the school. This “clinical training” is often
regulated by specific state laws that dictate the type of experience and the level of control
and supervision by the faculty in the clinical experience.7 If an employer follows these
detailed rules of the number of student for each clinical teacher and all of the other
requirements it would appear to easily comply with the dictates of Fact Sheet #71. Those
programs in public or non-profit heath care facilities would have no worry about Fact
Sheet #71. But even for-profit health care institutions should have little concern so long
as the clinical experience complies with the state law regulating such training, and is the
result of a college, university or other setting of higher education accredited by state or
health care organization for the education of the health care professional.
On the other hand, a former fund raiser for various non-profit groups who found
herself suddenly unemployed after ten years of fund raising at the age of 38 volunteered
to work, without compensation, for a minor league hockey team as a media consultant.
She worked the games, prepared press releases, post-game summaries and helped with
promotions and marketing the team for an entire season without pay. She was not
enrolled in any college or trade school course that conducted the internship. At the end
of the season the team hired her as a paid media consultant to work for it during the next
season.8 There would appear to be little doubt that this internship does not comply with
the requirements of Fact Sheet #71. It does not appear that what she did was similar to
the training which she would have received in an educational institution nor was she
connected with a university or college as a student. While the interview did not indicate
6
See Tucci Article, id., for one commentator’s argument of why such interns nevertheless should receive
minimum wages and any applicable overtime pay.
7
See, for example, Florida statute Chapter 464, (Nurse Practice Act); Rules of the Board of Nursing,
Chapter 64B9-2.008, on clinical training.
8
See Sunday Mornings, footnote 1, supra.
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whether she replaced a previous paid media consultant, her subsequent hiring as one
indicated the need of the employer to have such an individual. There is little doubt that
her employer received an immediate economic advantage from her activities as an unpaid
volunteer. While such a determination would have to be based upon the facts of the
particular case, the employer would have an up-hill battle to establish this relationship as
an unpaid internship, as opposed to employment which required minimum wages and
overtime, if the work hours exceeded forty hours in any one week.
While Fact Sheet #71 is of relative recent origin, it springs forth from a vast array
of previous decisions that, while not touching exactly upon the unpaid internship
phenomenon of recent years, are nearly identical with the legal issues raised by these
programs.
THE LEGAL SETTING
In 1947 a case reached the United States Supreme Court that has become the
bedrock concept that someone may perform the functions of a job at an employer, while
trying to learn the skills necessary to perform those needed functions, and, yet, not be an
employee for the purposes of the FLSA.9 In this case the employer had for many years
conducted a course of practical training to individuals who desired to become yard
brakemen for the railroad employer. The Court described the training as follows:10 No
applicant for employment in this position was ever accepted until the applicant had this
preliminary training which was seven or eight days in length. If a person was accepted
for training the individual was turned over for training to a yard crew where the person
first learned the routine activities by observation and then gradually permitted to do
actual work under close scrutiny. The activities of the individual did not displace any of
the work of the regular employees who did most of the work themselves and had to stand
by to supervise whatever the trainees did. If the course of training was completed
satisfactorily the trainee’s name was added to a list from which the employer would hire
individuals as needed. If the trainee did not satisfactorily complete the training the
individual would not be placed on the list and not hired. The trainees initially did not
receive any compensation for the training, but at a later time those who satisfactorily
completed the training did receive a small per diem retroactively for the days of training.
The DOL brought an action against the employer for violations of the record
keeping and minimum wage provisions of the FLSA. The District Court and the Circuit
Court of Appeals denied the request for injunction and damages, finding that the
individuals at issue were not employees under the FLSA who were entitled to the benefits
9
Walling v. Portland Terminal Co., 330 U.S. 148 (1947). A companion case was argued and decided on
the same dates as Portland and decided in a similar manner. Walling v. Nashville, C. & St. L. R. Co., 330
U.S. 158 (1947).
10
Id. at 149-50.
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of the FLSA. The United States Supreme Court affirmed, with Justices Frankfurter and
Jackson concurring. The Court found:
Section 3 (g) of the Act defines “employ” as including “to suffer or permit
to work” and § 3 (e) defines “employee” as “any individual employed by an
employer.” The definition “suffer or permit to work” 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. Otherwise, all students would be employees of the school or college they
attended, and as such entitled to receive minimum wages. So also, such a
construction would sweep under the Act each person who, without promise or
expectation of compensation, but solely for his personal purpose or pleasure,
worked in activities carried on by other persons either for their pleasure or profit.
But there is no indication from the legislation now before us that Congress
intended to outlaw such relationships as these. The Act’s purpose as to wages
was to insure that every person whose employment contemplated compensation
should not be compelled to sell his services for less than the prescribed minimum
wage. The definitions of “employ” and of “employee” are broad enough to
accomplish this. But, broad as they are, they 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. Had these trainees taken courses in railroading
in a public or private vocational school, wholly disassociated from the railroad, it
could not reasonable be suggested that they were employees of the school within
the meaning of the Act. Nor could they, in that situation, have been considered as
employees of the railroad merely because the school’s graduates would constitute
a labor pool from which the railroad could later draw its employees. The Fair
Labor Standards Act was not intended to penalize railroads for providing, free of
charge, the same kind of instruction at a place and in a manner which would most
greatly benefit the trainees.”11
If Portland Terminal stood alone as the Court’s application of the FLSA to unpaid
trainees or interns it might be persuasively argued that the current phenomenon of widespread use of unpaid interns by for-profit companies could escape the application of the
minimum wage and overtime provisions of the Act. In 1985, however, the Court
revisited the issue of unpaid “associates” and their coverage under the FLSA.
The Court in Tony & Susan Alamo Foundation v. Secretary of Labor,12 had to
determine whether individuals who worked for a religious foundation in its commercial
businesses were employees under the Act. The employer was a non-profit religious
organization, incorporated under state law, which operated a church and ministered to the
“sick and needy.” It did not solicit contributions from the public. Instead, it operated a
number of commercial enterprises, including “service stations, retail clothing and grocery
11
Id. at 152-53.
12
471 U.S. 290 (1985).
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outlets, hog farms, roofing and electrical construction companies, a recordkeeping
company, a motel, and companies engaged in the production and distribution of candy.”13
These businesses were operated by individuals, called “associates,” most of whom, in the
Court’s words, “were drug addicts, derelicts, or criminals before conversion and
rehabilitation by the [Employer.]”14 These individuals did not receive salaries, but
employer did provide them with food, clothing, shelter, and other benefits.
The Secretary of Labor filed a FLSA action against the employer alleging
violations of the minimum wage, overtime, and recordkeeping provisions of the Act. The
District Court found that the employer, notwithstanding its incorporation as a nonprofit
religious organization, was engaged in ordinary commercial activities in competition with
other commercial businesses. It also found that the individuals who worked in these
businesses were employees under the FLSA. The Court of Appeals for the Eighth Circuit
affirmed, but disagreed with the implementation of the remedy. The Supreme Court
affirmed the findings and conclusions of the District Court.
The Supreme Court noted that for the employer’s commercial activities to be
covered by the FLSA two conditions needed to be satisfied. First, employer’s businesses
must be an “enterprise engaged in commerce or in the production of goods for
commerce.” Second, the individuals labeled “associates” must be employees within the
definition of the Act.15 The Court found that both of these conditions were satisfied. For
the purposes of this paper the Court’s discussion of the enterprise condition is not
relevant, except to note that even though the employer was a religious entity the
numerous businesses that it conducted were commercial in nature and that:
Both [lower] courts found that the [Employer’s] businesses serve the general
public in competition with ordinary commercial enterprises . . . and the payment
of substandard wages would undoubtedly give petitioners and similar
organizations an advantage over their competitors. It is exactly this kind of
“unfair method of competition” that the Act was intended to prevent . . . and the
admixture of religious motivations does not alter a business’ effect on
commerce.16
Next the court examined whether the individuals were within the definition of employees
under the Act.
13
Id. at 292 and footnote 2. In the footnote the Court incorporated the District Court’s finding that the
employer operated “4 business in California, 30 businesses in Arkansas, 3 businesses in Tennessee, and a
motel in Tempe, Arizona.”
14
Id.
15
Id. at 295.
16
Id. at 299 (internal citations omitted).
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The Court first noted the Portland Terminal case, stating that not all individuals
who worked for an employer were statutory employees under the Act.17 It then
commented that the individuals involved had all asserted by way of affidavits or
testimony that they “expected no compensation for their labors.”18 In fact, the Secretary
had been unable to find a past or present individual who considered the work performed
as anything other than “volunteering” the services to employer. But the Court went on to
observe:
Nevertheless, these protestations, however sincere, cannot be dispositive.
The test of employment under the Act is one of “economic reality,” . . . and the
situation here is a far cry from that in Portland Terminal. Whereas in Portland
Terminal, the training course lasted a little over a week, in this case the associates
were “entirely dependent upon [employer] for long periods, in some cases several
years.” . . . .Under the circumstances, the District Court’s finding that the
associates must have expected to receive in-kind benefits – and expected them in
exchange for their services – is certainly not clearly erroneous. Under Portland
Terminal, a compensation agreement may be implied as well as “express,” . . .
and the fact that the compensation was received primarily in the form of benefits
rather than cash is in this context immaterial. These benefits are, as the District
Court stated, wages in another form.19
The Court then discussed the claims by the individuals that they were only
volunteers and did not expect to receive any compensation for their services:
That the associates themselves vehemently protest coverage under the Act
makes this case unusual, but the purposes of the Act require that it be applied
even to those who would decline its protections. If an exception to the Act were
carved out for employees willingly to testify that they performed work
“voluntarily,” employers might be able to use superior bargaining power to coerce
employees to make such assertions, or to waive their protections under the Act. . .
Such exceptions to coverage would affect many more people than those workers
directly at issue in this case and would be likely to exert a general downward
pressure on wages in competing businesses.20
The Court rejected the employer’s First Amendment claimed exemption and found that
the employer’s commercial activities were subject to the Act and its associates entitled to
its full protection.21
17
Id.
18
Id. at 300.
19
Id. at 301 (internal citations and footnotes omitted).
20
Id. at 302 (internal citations omitted).
21
Id at 306.
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These two cases, Portland and Alamo, represent the two termini of the continuum
of whether an unpaid intern for a commercial activity is entitled to protection of the
FLSA. A relatively short period of training, where the employer receives little or no
benefit from the work of the intern, except a potential in the future of having a qualified
individual to fill a possible position, may be free of the dictates of the FLSA since the
individual is not an “employee” under the Act. On the other hand, an indeterminate term
of service for a commercial endeavor where the individual is dependent upon the
employer for life services, such as food and housing, will constitute employment of an
employee even if the individual states under oath that the services are voluntary and the
person expects no monetary reward for the work performed. Of course, most cases are
not so “cut and dried,” but appear at various points along the continuum. Two examples
of lower court decisions may be of further assistance in our examination of this topic.
As previously mentioned, these cases are fact-determinative and an exhaustive
examination of those facts is usually required. In a case involving the training of
individuals for radiologic technologists, that included time spent at a hospital as well as
classroom time at an educational institution, the Secretary of Labor sought minimum
wages, overtime pay and a compliance with the recordkeeping requirements of the FLSA
for the time worked at the hospital by the trainees.22 The program had been initiated by a
university that subsequently had accreditation problems with the program and had
abandoned it. A junior college took over the program which was conducted in
conjunction with a number of hospitals, including the instant employer. After a careful
and thorough review of the history of the program the district court concluded that the
program was not exempt from the coverage of the FLSA. The court noted:
It is beyond question that the defendant received direct and substantial
benefit from the work performed by trainees, work that would otherwise have
been done by regular employees and work for which the hospital charged patients
at full rates. Had the training program been found to be educationally sound the
court might nevertheless have concluded that the bulk of the benefit inured to the
trainees, but because the trainees were shortchanged educationally the court finds
that the hospital was the primary benefactor from the relationship between it and
the trainees. Simply stated, the hospital exploited the training program, turning it
to its own advantage. That its advantage might in turn be to the advantage of the
public does not justify violating the interests served by the FLSA, which are also
designed to promote the public good.23
The court ordered compliance with the Act and issued an injunction against the employer.
22
Marshall v. Baptist Hospital, Inc., 473 F. Supp. 465 (M.D. Tenn., 1979), rev’d on other grounds, 668
F.2d 234 (6th Cir. 1981). The hospital was subject to the provisions of the FLSA because of the 1967
amendments to the Act. Section 3(s), 29 U.S.C. § 203(s).
23
Id. at 476-77.
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On appeal the circuit court had no significant disagreement with the district court
concerning the facts of the case. But it found that the provisions of the Portal to Portal
Act24 of the FLSA applied and estopped the Secretary from enforcement of the Act. The
district court had rejected such a defense, but the appellate court found that an
administrative interpretation was ambiguous and the employer had not acted irrationally
or in bad faith as the district court had held.25 The court then concluded that the
employer’s “reliance on the rule contained in the . . . administrative interpretation
insulated it from retroactive liability for minimum wages otherwise due X-ray
students.”26 Such a “home free” card is rarely available to most employers otherwise
covered by the FLSA.
A second lower court case that is worthy of examination in this discussion is the
Sixth Circuit’s decision in Solis v. Laurelbrook Sanitarium and School, Inc..27 In this
case the Secretary of Labor sought to apply the child labor provisions28 of the Act to the
employer. The Seventh-Day Adventists operated a sanitarium as a nonprofit corporation
which followed the teachings of the Seventh-Day Adventist Church. Employer operated
a boarding school for students in grades nine through twelve, an elementary school for
children of the staff members and a 50-bed intermediate-care nursing home that assisted
in the students’ practical training. It was accredited by state and private organizations.
The students spent four hours a day in class and four hours a day learning practical skills.
All teachers instructed in both settings.29 The court felt bound by the facts determined by
the District Court. The Court concluded that:
The Sanitarium is staffed such that if the students were not training there,
staff members could continue to provide the same patient services. But since the
Sanitarium is integral to the education the school provides, [Employer] would not
operate the Sanitarium if the school did not exist. In other words, the
Sanitarium’s sole purpose is to serve as a training vehicle for students. Therefore,
the district court reasoned, students do not displace adult workers or other
employees who might be willing to work at the Sanitarium.30
24
29 U.S.C. § 259.
25
668 F.2d at 238. For a recent Supreme Court decision which refused to defer to the DOL’s
interpretation of the “outside salesmen” exemption of the FLSA see Christopher v. Smithkline Beecham
Corp., 567 U.S. ___, case no. 11-204 (2012).
26
Id. See generally, Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392-93 (1960)(employer has the burden
to prove compliance with each and every criteria of any claimed exemption).
27
642 F.3d 518 (6th Cir. 2011), reh’g denied, 2011 U.S. App. LEXIS 14678 (6th Cir. July 6, 2011). The
District Court’s finding of facts and conclusions of law are found at 2009 WL 2146230 (E.D. Tenn. 2009).
28
29 U.S.C. § 212(c).
29
Supra, note 27, at 520.
30
Id.
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The District Court had concluded that the individuals were students and not
employees of employer under the FLSA. The Court of Appeals agreed noting that:
There is no settled test for determining whether a student is an employee for the
purposes of the FLSA. The district court applied what the parties characterize as
a “primary benefit test” and considered which party (school or student) receives
the primary benefit of the work the student performs.31
It noted that the definition of “employee,” while broad, was not without its limitations,
citing the Alamo’s opinion referenced to the Portland Terminal case. It summarized the
test of employment, stating:
Whether an employment relationship exists under a given set of
circumstances “is not fixed by labels that parties may attach to their relationship,
not by common law categories nor by classifications under other statutes.” . . .
Rather, it is the “economic reality” of the relationship between parties that
determines whether their relationship is one of employment or something else. . . .
“The issue of the employment relationship does not lend itself to a precise test,
but is to be determined on a case-by-case basis upon the circumstances of the
whole business activity.”
While the Secretary and [Employer] agree that economic realities govern
here, there is considerable dispute between them regarding the more specific
inquiry we should undertake in this instance. To state that economic realities
govern is no more helpful than attempting to determine employment status by
reference directly to the FLSA’s definitions themselves. There must be some
ultimate question to answer, factors to balance, or some combination of the two.32
The Court decided that this ultimate question or factor to balance was which party
received the primary benefit of the relationship. But first it examined the DOL’s six
factor test to distinguish between employees and trainees contained in the WHD’s Field
Operations Handbook.33 It found that these six factors were not entitled to substantial
deference under normal rules of administrative deference:
We find the WHD’s test to be a poor method for determining employee
status in a training or educational setting. For starters, it is overly rigid and
inconsistent with a totality-of-the-circumstances approach, where no one factor
(or the absence of one factor) controls. . . . Furthermore, the test is inconsistent
with Portland Terminal itself, which as outlined below, suggests that the ultimate
31
Id. at 521.
32
Id. at 522-23 (citations omitted).
33
Id. at 524-25. These six factors are nearly identical to those contained in Fact Sheet #71.
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inquiry in a learning or training situation is whether the employee is the primary
beneficiary of the work performed. While the Secretary’s six factors may be
helpful in guiding that inquiry, the Secretary’s test on the whole is not.34
The court continued to further examine the Supreme Court’s decision in Portland
Terminal and concluded that the Supreme Court’s decision should be read as resting upon
whether the trainees received the “primary benefit” of the work they performed.35 It
agreed with the district court that the work performed by the individuals in this case was
for their primary benefit and not that of the employer. The students did not displace
compensated workers and the teachers had to spend extra time supervising the students at
the expense of performing productive work. Employer was not in competition with other
institutions for labor and did not enjoy an unfair advantage over other institutions by
reason of the work performed by the students.36 Accordingly, the decision of the district
court was affirmed.
The Laurelbrook decision should not be read to provide too much solace for
employers in the private sector since the work activity performed by the students was
operated by the same employer that provided the educational instruction to the students.
Most cases of unpaid interns at for-profit employers will not have a similar circumstance
that if the unpaid interns were not providing services for the employer the employer
would cease to do business. While all of these cases are fact-dependent, the facts in the
generic unpaid internship generally will not be as favorable of a finding of a student
status, instead of an employee status, for the services provided to the employer. In fact, it
is probably axiomatic that if the services provided by the individuals actually impede the
business of the for-profit employer the employer will not continue to provide the
opportunity to the individuals. While some for-profit employers may be eleemosynary
enough to provide these opportunities to individuals at an economic loss to themselves, it
is anticipated that this will be the exception to the rule.
One particular use of unpaid interns by for-profit employers involves the use of
law students who seek an internship with a for-profit entity and at the same time desire to
obtain credit at their law school toward their graduation requirements. Because of a
special accreditation requirement of the American Bar Association which prohibits such
individuals from receiving both credits toward graduation as well as compensation for
such an internships, problems arise in satisfying both the masters of the ABA as well as
the FLSA. We now turn to an examination of that scenario.
34
Id. at 525 (citations and material omitted).
35
Id. at 526.
36
Id. at 530-31.
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UNPAID LEGAL INTERNSHIPS FOR PRIVATE EMPLOYERS
The American Bar Association is the accrediting body that conducts inspections
of the over 200 law schools in the United States. A law school must be ABA-accredited
in most jurisdictions in order for its graduates to sit for the respective bar examinations in
those states. As a result, it is critical that a law school that provides internship
opportunities that receive credit toward graduation not run afoul of the ABA standards.
These accreditation standards have a direct, although perhaps unintended, consequence
for the for-profit entity that seeks to retain a law student from a law school for its
internship program.
Standard 305(a) of the ABA’s Standards for Approval of Law Schools provides:
A law school may grant credit toward the J.D. degree for courses or a program
that permits or requires student participation in studies or activities away from or
outside the law school or in a format that does not involve attendance at regularly
scheduled class sessions.
Interpretation 305-3 of that Standard provides:
A law school may not grant credit to a student for participation in a field
placement program for which the student receives compensation. This
Interpretation does not preclude reimbursement of reasonable out-of-pocket
expenses related to the field placement.37
Reading the Standard and the Interpretation together it is reasonable to conclude that any
student who desires to receive academic credit while working as an intern for a for-profit
employer must do so as an unpaid intern. As discussed above, this means that such
internships will inextricably cause a clash between the ABA Standards and
Interpretations and the FLSA unless that internship provides only benefits for the student
and none, or at least very little, for the employer. This does not cause a problem with
unpaid interns at government agencies and nonprofit organizations since they are not
included within the coverage of the FLSA.38
37
The American Bar Association’s Standards and Interpretations are found at
http://www.americanbar.org/groups/legal_education/resources/standards.html. For a more inclusive
examination of this see Bernadette Feeley, Examining the Use of For-Profit Placements in Law School
Externship Programs, 14 Clin. L. Rev. 38, 54-60 (2007). See also, Perlin, Intern Nation, supra footnote 2,
at Chapter 5, pages 83-98, entitled “Cheerleaders on Campus,” wherein the author excoriates universities
and colleges for their complicity in encouraging these unpaid internships and the abandonment of co-op
programs where the students had earned compensation while working at the employers.
38
See footnote 5, supra.
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The private law firm39 and the for-profit employer’s legal department for whom
the unpaid intern may perform services may, of course, argue as did the employer in
Laurelbrook, that they are not receiving any benefit from the services of the unpaid
intern. But it will be a rare employer that can argue and prove it “would not exist” if the
internship program ended. This is not to say that a private sector employer can never
prove that the internship comes within the six factors of the DOL’s Fact Sheet #71. But
for such an employer to convince a court that any benefits that it receives from the unpaid
services of the intern are negligible would appear to be rare. A for-profit employer is just
that; it is in business to make a profit. It is not an organization that has a purpose to
educate or train individuals for the practice of law. So the employer’s focus must be
upon discrediting the six factors test and convincing the court to engage in some type of a
balancing test wherein the court will be satisfied that the benefit to the unpaid intern
exceeds that of the benefit to the employer. But programs such as those in Portland
Terminal and Laurelbrook are as unusual as they are rare.
Prior to the recent explosion of unpaid internships in our society most for-profit
employers who hired law students did so for many reasons such as possible recruitment
of future attorneys for the entity, additional assistance in the office in preparation of legal
documents and part time help in times of increased business in the office that might not
be of long duration. Many lawyers in practice today started as a legal clerk for such law
firms and corporations as a supplement to their legal education. But these positions were
paid positions, albeit many at minimum wage or slightly above that level. The law
students did not receive credit toward their degree, but were compensated for the work
performed while they were acquiring valuable practical experience. As the ABA
increased its emphasis upon law schools to provide “real life” training of law students
outside of the law schools more and more law schools sought to expand the externship
opportunities for their students from the traditional legal aid services and positions with
the judiciary to private law firms and corporations. In turn, many law firms and legal
departments decided “to jump on the band wagon” of internships of law students from
law schools who would receive credit toward graduation, but no compensation. There
was little thought of how this advance in practical legal education through experience
could be impacted by the protections of the FLSA.
An added complication in this area is when the private law firm decides to charge
its clients for the services of the unpaid intern. While little seems to be reported in this
area at least one case was found where a court reacted negatively to such a firm trying to
add such claims onto an attorney’s fees and cost claim in a case. The U.S. Court of
Appeals for the Seventh Circuit, in remanding such a claim for fees and costs in an
employment discrimination case, observed:
Upon reviewing the district court’s opinions, as well as the record below, it is
unclear whether the plaintiffs were awarded costs for work performed by unpaid
39
If a law firm has sales exceeding $500,000 in annual dollar volume or is engaged in interstate commerce
as defined by the FLSA then it must pay minimum wages to its covered employees. DOL Fact Sheet #3
found at http://www.dol.gov/whd/regs/compliance/whdfs3.pdf.
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interns working in the offices of plaintiff’s attorneys. We would consider it
highly unusual for a district court to order a defendant to pay for work that was
performed at no cost to a plaintiff or to his attorneys. Therefore, we vacate the
district court’s award of costs and remand this matter to this district court to
determine the amount of costs that were generated by unpaid interns. If, on
remand, the district court determines that such costs should be awarded, it should
supply some reasoning justifying that conclusion.40
A brief review of the legal standard of finding whether such activities constitute
work for which the intern should be paid, or is an activity for which no compensation is
needed, is necessitated by the Circuit Court’s decision in Laurelbrook that the economic
reality test of prior decisions is not helpful, but that a “primary benefit” test should be
applied in these types of cases.41
ECONOMIC REALITY or PRIMARY BENEFIT TEST
With due respect to the Circuit Court’s decision that the primary benefit test is
more helpful in the determination of the application of minimum wages, or in that case
child labor, than the economic reality test, it seems misplaced in the usual determination
of the application of the FLSA to unpaid intern situations. In many employment
situations it may be to the individual’s “primary benefit” to obtain training, experience
and knowledge that performing a particular job entails by a “hands-on” practical training
in an internship program. But in most of those cases the employer also receives a benefit
of having a particular job performed, maybe not at the level of proficiency that a skilled
employee would impart, but still at a level that generates an ultimate profit for the
employer. So a balance between a benefit to the individual and a benefit to the employer
does not solve the problem in most cases since each will receive some benefit. Assuming
that the intern receives the “primary benefit” based upon some type of cost-benefit
analysis, an economic benefit to the employer should also trigger the application of the
FLSA. If all that a court needs to do is determine who receives the “primary benefit” of
such an internship many employers will be able to fashion an internship program where
the intern receives the primary benefit, but the employer also receives a significant
benefit, but less than the primary one. While Congress could fashion such a program to
encourage training of individuals at no cost to an employer, it certainly did not do so with
the passage of the FLSA in the 1930’s. As previously noted by the Supreme Court in
Alamo, even where the individuals did not want to get paid and the services they
performed were calculated by them to be part of their rehabilitation from drugs and
alcohol abuse, their services in the commercial activities of the employer if unpaid
“would affect many more people than those workers directly at issue in this case and
40
Kitchen v. TTX Company, 284 F.3d 688, 692 (7th Cir. 2002). See also, David Gregory, The Problematic
Employment Dynamics of Student Internships, 12 Notre Dame J. of Law, Eth. & Pub. Pol. 228, 245
(1998)(A public relations firm settled a case with the Secretary of Labor where it was shown that the
employer had billed clients for unpaid intern work).
41
Supra, footnote 27, 642 F.3d at 522-23 and 529.
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would be likely to exert a general downward pressure on wages in competing
businesses.”42
This battle between the two tests to determine whether an individual who is called
an “unpaid intern” is covered by the FLSA is similar to battles over whether an individual
is an independent contractor or employee.43 In those cases the U.S. Supreme Court noted
that the common law test of employee-employer status was not controlling particularly in
light of the social legislation of the 1930’s adopted to protect those individuals perceived
not to be able to protect themselves.44 Where an employer has received some material
benefit from the individual’s work, regardless of whether the individual may also have
received the primary benefit, it is fair to require the for-profit employer to compensate at
least at the minimum hourly rate that person so that other employers in competition with
it will not be unfairly disadvantaged in the labor rate for the services rendered.
Where the employer, such as Laurelbrook, can convince the court that absent the
individual’s participation in the endeavor it would not be conducting the business, then
the employer may not have received any material benefit from the individual’s service.
But in the vast majority of the cases the for-profit employer will remain in business in the
absence of the unpaid internship. In fact, it is anticipated that in many of the unpaid
internship situations it will be found that prior to adopting it the services had been
preformed by individuals who were paid for the work.45 Where the unpaid interns have
replaced persons who were paid for their services in the past a strong case for the
application of the FLSA is indicated. Moreover, where the for-profit employer charges
others for the services of the unpaid intern it is hard to question that the employer has
received an economic benefit as a result of the work done by the intern.46
A determination that an individual designated an unpaid intern is in reality a
person who should be receiving at least minimum wages for the work performed is not
without some serious consequences by way of damages and costs asserted by the
individual. In addition, there is the potential that the Department of Labor may institute
its own procedures for injunctive relief as well as damages in an appropriate case. A
42
Supra, footnote 12, 471 U.S. at 302.
43
See generally, ABA, The Fair Labor Standards Act, Vol.1, Ch. 3.II.B and Ch. 3.C. (2nd Ed., BNA
2010). See also Mazurak, Significant Recent Employment Law Developments in State Common Law and
Statutory Decisions, 23 The Labor Lawyer 253, 254-62 (2008)(discussing state court decisions
differentiating between independent contractors and employees under various state statutes). See also, the
IRS test applying 20 factors and 3 categories of control to differentiate employees from independent
contractors. Rev. Rul. #87-41, 1987-1 C.B. 296.
44
See, e.g., Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947) and Goldberg v. Whitaker House
Cooperative, 366 U.S. 28 (1961).
45
Supra, footnote 22, 473 F. Supp. at 473.
46
See footnote 40 and text.
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brief examination of the remedial aspects of the FLSA is appropriate before concluding
this examination of the unpaid intern working for the for-profit employer.
REMEDIES
Either the Secretary of Labor or the individual may assert a claim for minimum
wages and overtime pay pursuant to the FLSA.47 Remedies may include injunctive relief,
back pay, an equal amount in liquidated damages and reasonable attorney’s fee and
costs.48 The statute of limitations for such actions is two years, except in the case of a
“willful violation” where it is three years.49 Most cases in this area can be expected to be
governed by the three year provision. Good faith of the employer is not a defense to the
three year statute so long as it “knows or has reason to know that [its] conduct is
governed by the Act.”50 These remedies are not inconsequential. One illustration, of
many that can be found, is instructive.
Plaintiff, a skilled model maker, brought an action against an employer alleging
lost wages, overtime pay, attorneys’ fees and cost pursuant to the FLSA. After a trial in
the district court partial liability was found and attorneys’ fees and costs awarded. Both
parties appealed the decision to the Sixth Circuit Court of Appeals. The district court
found that $3,840 in overtime pay was due, which was doubled as liquidated damages as
a result of the court finding that the actions of the employer were willful under the Act.
The Court of Appeals affirmed the award of damages and remanded the matter for the
determination of additional damages.51 This award of $7,680, however, resulted in the
district court’s assessment of $40,000 in attorneys’ fees. The Court of Appeals affirmed
this award and gave leave to the district court to award additional fees based upon the
appeal in the case.52 An award of attorney’s fees in excess of $40,000 for a case
involving only $3,840 in back pay is a significant consideration for employers in
balancing whether an unpaid internship is worth the trouble.
In its explanation of the large amount of attorneys’ fee, as opposed to the relative
small amount of overtime pay and liquidated damages, the court noted that the amount of
attorneys’ fees was within the discretion of the district court. That court’s decision was
proper in light of consideration of the encouragement of plaintiffs to vindicate the
47
See generally, ABA, The Fair Labor Standards Act, Vol. II, Chs. 17-19 (2nd Ed. BNA 2010).
48
29 U.S.C. § 216.
49
29 U.S.C. § 255.
50
Supra, footnote 22, at 473 F. Supp. at 480, quoting Conklin v. Joseph C. Hofgesang Sand Co., 407 F.
Supp. 1090, 1094 (W.D.Ky. 1975, aff’d, 565 F.2d 405 (6th Cir. 1977).
51
Fegley v. Higgins, et al., 19 F.3d 1126, 1135-36 (6th Cir. 1994).
52
Id. at 1134-35.
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policies of Congress in adopting the FLSA as well as making effective access to the
judicial process by those harmed by violations of the Act.53 It then went on to note:
Turning to the amount of the award, we cannot say the district court
abused its discretion in awarding $40,000 in attorney fees to [plaintiff]. We note
that this lawsuit furthers the objectives of the FLSA by penalizing an employer
who neglected to pay an employee overtime or to even maintain any records of
his hours worked; it therefore encourages employer adherence to the mandates of
the FLSA in the future.54
Similar cases can be found wherein courts have “upheld substantial awards of attorney’s
fees even though a plaintiff recovered only nominal damages.”55
Thus, a particular case may involve a relatively small amount of actual damages,
even if that amount is doubled as liquidated damages, but the potential award of
attorney’s fees under the provisions of Section 216(b) can be substantial. This provides
an incentive to individuals to bring such claims, even if the recovery to the individual
may be small. Likewise, employers should be cautious in considering the use of unpaid
interns in the workplace where an award of attorney’s fees may well erase any savings
that the employer may envision by not paying minimum wages for the intern’s services.
While Section 216(b) does not provide for attorney’s fees to the employer in the
event that the claim of the individual is found not to have merit,56 a successful employer
who prevails in an action brought by the Secretary of Labor may have a remedy under the
Equal Access to Justice Act (“EAJA”) if the prerequisites of that provision are met.57
The District Court in Laurelbrook undertook such an examination after conclusion of the
Circuit Court’s action in the case.58
The court examined the four conditions of the EAJA that (1) the fee applicant
must be a prevailing party, (2) the government’s position was not substantially justified,
(3) no special circumstances existed to make the award unjust, and (4) the fee application
must have been filed within thirty days of the final judgment. The court noted that
conditions 1 and 4 were met and not contested by the Secretary. It then examined the
53
Id.
54
Id. at 1135.
55
Id. at 1135 (citing Posner v. The Showroom, Inc., 762 F.2d 1010, 1985 WL 13108 at *2 (6th Cir.
1985)(unpublished).
56
Id.
57
28 U.S.C. § 2412. There are certain prerequisites in the financial size of the claimant, whether a person
or a corporation, unless it is a qualified charitable organization. 28 U.S.C. § 2412(d)(2)(B).
58
Chao v. Laurelbrook Sanitarium and School, Inc., ___ F.Supp 2d ____, 2012 WL 1836287 (E.D. Tenn.
2012).
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remaining two conditions which it found present in that case. It felt that the Secretary’s
position was not justified in that she did not apply the primary benefit analysis in either
its investigation or litigation strategy and did not find any special circumstances existed
in the case. It then awarded the Employer over $218,000 for the costs of its attorney’s
fees and cost in defending the action against the Secretary of Labor. While a more
detailed examination of the application of the EAJA is beyond the scope of this paper, it
is an important factor for the employer’s counsel to consider if the government cannot
sustain its burden of proof in a particular case.
FINAL THOUGHTS
This paper has not tried to fully examine this detailed area of the application of
the FLSA to unpaid interns working in the for-profit sector. But the widespread use of
such internships is cause of concern that many individuals are not receiving the benefits
of minimum wage and overtime payments to which they are entitled. As the number of
such internship proliferate so too can the increase in the number of legal actions be
anticipated.59 The problem can be solved simply by payment of minimum wages, which
is less that $8.00 per hour under federal law and most similar state statutes. A careful
examination of the tasks that interns are asked to perform may indicate that while the
individuals are obtaining valuable experience and knowledge while working in such
positions, the employers are more than likely receiving more than nominal benefits from
the service of the interns. In many cases a review of the history of the employer may
reveal that prior to the implementation of the unpaid internship program the employer
compensated someone to perform these tasks. It may be that if the interns were not
present someone on the existing staff would have to do the work or the employer would
have to hire additional employees to accomplish the tasks.
It is also apparent that many of these “unpaid internships” are not performed in
conjunction with any course of training at a college, university or apprenticeship school
or training facility. Many of these individuals have graduated from their institution of
learning or did not attend a program that may have a requirement to obtain workplace
experience as a part of the educational goals and objectives. As indicated above, some
use the internship as a trial period to prove to the employer that they can perform the
work that needs to be done. They are simply opportunities for an employer to see if the
individual has the skills, attributes or qualifications that are needed for such position. But
this type of “look-see” opportunity was previously known as a probationary period at the
start of an employment relationship for which compensation was paid.
59
Unpaid Interns Get Conditional Certification, 18 No.3 Pub. Employer’s Guide FLSA Emp.
Classification Newsl. 11 (Sept. 2012) noting the conditional certification of a class of unpaid interns
working at the Hearst Corporation at 19 different magazines of the company. It also noted a similar suit
instituted by two former unpaid interns working on the production of the movie Black Swan. See, Steven
Greenhouse, Interns, Unpaid by a Studio, File Suit, New York Times, Sept. 28, 2011,
http://www.nytimes.com/2011/09/29/business/interns-file-suit-against-black-swan-producer.html. See
generally, Perlin, Intern Nation, supra footnote 2, Chapter Four, entitled “A Lawsuit Waiting to Happen,”
pages 61-82, wherein the author sets forth a myriad of potential litigation situations.
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Many individuals work “summer placement” positions while full time employees
are on vacation or otherwise absent from work. These positions previously were
compensated, sometimes at minimum wage or slightly above, during the time of
employment. Now these summer positions are being occupied by unpaid interns. If a
major television network can use 75 summer interns, all unpaid except for a $50 per week
stipend, and such persons perform the work of regular employees, such as interviewing
individuals for production pieces, it is little wonder that more and more employers are
seeking to avoid paying for such services.60 The evils that Congress sought to correct by
the adoption of the FLSA included such activities of requiring individuals to work
without compensation to see if they were suited for the jobs. While there may be some
unpaid internships that come within the ambit of such cases as Portland Terminal and
Laurelbrook where the employers received little or no benefit from the services of the
individuals, most of the situations that are currently being conducted as unpaid
internships do not fit within those limited situations. Employers are receiving valuable
services from the unpaid internships for which the FLSA requires minimum wages and
overtime compensation.61
60
61
Sunday Mornings, supra footnote 1.
For a recent blog concerning the basic fairness, ethical and legal implications of unpaid internships see
Robby Slaughter, Workplace Fairness and Wages: The Ethical and Legal implications of Unpaid
Internships, http://www.todaysworkplace.org/2013/01/28workplace-fairness-and-wages-the-ethical-andlegal-implications-of-unpaid-internships.html.
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[APPENDIX - Page 1]
U.S. Department of Labor
Wage and Hour Division
(April 2010)
Fact Sheet #71: Internship Programs Under The Fair Labor
Standards Act
This fact sheet provides general information to help determine whether interns must be
paid the minimum wage and overtime under the Fair Labor Standards Act for the services
that they provide to “for-profit” private sector employers.
Background
The Fair Labor Standards Act (FLSA) defines the term “employ” very broadly as
including to “suffer or permit to work.” Covered and non-exempt individuals who are
“suffered or permitted” to work must be compensated under the law for the services they
perform for an employer. Internships in the “for-profit” private sector will most often be
viewed as employment, unless the test described below relating to trainees is met. Interns
in the “for-profit” private sector who qualify as employees rather than trainees typically
must be paid at least the minimum wage and overtime compensation for hours worked
over forty in a workweek.*
The Test For Unpaid Interns
There are some circumstances under which individuals who participate in “for-profit”
private sector internships or training programs may do so without compensation. The
Supreme Court has held that the term "suffer or permit to work" cannot be interpreted so
as to make a person whose work serves only his or her own interest an employee of
another who provides aid or instruction. This may apply to interns who receive training
for their own educational benefit if the training meets certain criteria. The determination
of whether an internship or training program meets this exclusion depends upon all of the
facts and circumstances of each such program.
The following six criteria must be applied when making this determination:
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;
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[Appendix – Page 2]
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 all of the factors listed above are met, an employment relationship does not exist under
the FLSA, and the Act’s minimum wage and overtime provisions do not apply to the
intern. This exclusion from the definition of employment is necessarily quite narrow
because the FLSA’s definition of “employ” is very broad. Some of the most commonly
discussed factors for “for-profit” private sector internship programs are considered
below.
Similar To An Education Environment And The Primary Beneficiary Of The
Activity
In general, the more an internship program is structured around a classroom or academic
experience as opposed to the employer’s actual operations, the more likely the internship
will be viewed as an extension of the individual’s educational experience (this often
occurs where a college or university exercises oversight over the internship program and
provides educational credit). The more the internship provides the individual with skills
that can be used in multiple employment settings, as opposed to skills particular to one
employer’s operation, the more likely the intern would be viewed as receiving training.
Under these circumstances 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. On the other hand, if the interns are engaged in the operations of the employer or
are performing productive work (for example, filing, performing other clerical work, or
assisting customers), then the fact that they may be receiving some benefits in the form of
a new skill or improved work habits will not exclude them from the FLSA’s minimum
wage and overtime requirements because the employer benefits from the interns’ work.
Displacement And Supervision Issues
If an employer uses interns as substitutes for regular workers or to augment its existing
workforce during specific time periods, these interns should be paid at least the minimum
wage and overtime compensation for hours worked over forty in a workweek. If the
employer would have hired additional employees or required existing staff to work
additional hours had the interns not performed the work, then the interns will be viewed
as employees and entitled compensation under the FLSA. Conversely, if the employer is
providing job shadowing opportunities that allow an intern to learn certain functions
under the close and constant supervision of regular employees, but the intern performs no
or minimal work, the activity is more likely to be viewed as a bona fide education
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[Appendix – Page 3]
experience. On the other hand, if the intern receives the same level of supervision as the
employer’s regular workforce, this would suggest an employment relationship, rather
than training.
Job Entitlement
The internship should be of a fixed duration, established prior to the outset of the
internship. Further, unpaid internships generally should not be used by the employer as a
trial period for individuals seeking employment at the conclusion of the internship period.
If an intern is placed with the employer for a trial period with the expectation that he or
she will then be hired on a permanent basis, that individual generally would be
considered an employee under the FLSA.
Where to Obtain Additional Information
This publication is for general information and is not to be considered in the same light as
official statements of position contained in the regulations.
For additional information, visit our Wage and Hour Division Website:
http://www.wagehour.dol.gov and/or call our toll-free information and helpline,
available 8 a.m. to 5 p.m. in your time zone, 1-866-4USWAGE (1-866-487-9243).
U.S. Department of Labor Frances Perkins Building
200 Constitution Avenue, NW Washington, DC 20210
1-866-4-USWAGE
TTY: 1-866-487-9243
Contact Us
_______________________________
* The FLSA makes a special exception under certain circumstances for individuals who volunteer to
perform services for a state or local government agency and for individuals who volunteer for humanitarian
purposes for private non-profit food banks. WHD also recognizes an exception for individuals who
volunteer their time, freely and without anticipation of compensation for religious, charitable, civic, or
humanitarian purposes to non-profit organizations. Unpaid internships in the public sector and for nonprofit charitable organizations, where the intern volunteers without expectation of compensation, are
generally permissible. WHD is reviewing the need for additional guidance on internships in the public and
non-profit sectors.