The Perils of Unpaid Internships: What Employers Need to Know

By Alvaro Hasani

This time of year, students all over the country are eagerly searching for a meaningful internship experience in their chosen field. Typically, internship programs create a mutually beneficial relationship between interns and employers. Interns gain valuable hands-on experience that enhances their resumes, while employers get the benefit of short-term assistance, as well as new perspectives and ideas. However, unpaid internships can pose significant legal risks to employers. Recently, there has been an increase in lawsuits filed by unpaid interns claiming entitlement to minimum wage and overtime compensation under the FLSA and state law.

For employers, it is important to recognize that the ability to use unpaid interns is very limited. The U.S. Department of Labor has set forth the following six-part test that employers must satisfy in order to lawfully maintain an unpaid internship program:

1. The training is similar to vocational school.
2. The training is primarily for the benefit of the intern.
3. Interns do not displace regular employees, but instead work under their close supervision.
4. The company derives no immediate advantage from the intern's activities.
5. Interns are not necessarily entitled to a job at the conclusion of training.
6. Interns understand they are not entitled to wages.

In New Jersey, employers must satisfy an eight-factor test. While many of New Jersey’s requirements are similar to the federal requirements, there are additional mandates, including the condition that interns must be part of a formal educational program for credit with stated learning objectives.

Ultimately, employers should be mindful of these guidelines as they consider their summer hiring options. The safest approach is to pay minimum wage. Failure to have a specific credit-worthy program could lead to employers owing back wages, including possible overtime pay, to present and former interns. Those employers who wish to have unpaid internships, should provide incoming interns with a written description of the program that outlines the training and expectations, the benefits to the intern, the fact that the intern is not entitled to a job at the conclusion of the training, and the fact that the internship is unpaid. If there is any doubt whatsoever about the requisite factors being met, employers should pay interns at least minimum wage, plus overtime, if applicable.

About Alvaro Hasani

Alvaro Hasani is an associate in the New Jersey office. He focuses his practice on labor and employment litigation, compliance counseling, education law, and appellate matters. He has represented clients in a variety of complex litigation matters including labor and employment law, and general business disputes.