Nonprofit HR’s Blog

By Gerry Panaro

With the end of school, graduations and the summer coming and with many utilities perhaps in the process of putting summer intern programs together, this is an opportune time for a look at the law regarding interns.

Interns differ from other categories of workers, such as regular employees, volunteers, student-learners, apprentices, or international students working under the J-1 visa program. The distinguishing feature of an internship is that it is educational (or vocational) in nature.  According to the U.S. Department of Labor, when educational or training programs are designed to provide students with professional experience in the furtherance of their education and the training is academically oriented, the students will not be considered employees of the firm to which they are assigned.  Another indication of a bona fide internship program is that the intern is basically working for his/her own advantage on the premises of another.

A fact sheet published by the U.S. Department of Labor in April 2010 offers useful guidance on employment law related to internships.

Although the fact sheet applies to for-profit private-sector employers, it is nonetheless useful guidance for public employers.  The fact sheet offers six criteria for determining whether an individual is deemed an “intern” and therefore not an employee and thus exempt from the minimum wage and overtime requirements of the Fair Labor Standards Act. Internship programs must comply with all six of the following criteria:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training that 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.
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 these factors are met, an employment relationship does not exist under the Fair Labor Standards Act and the act’s minimum wage and overtime provisions do not apply to the intern, the Department of Labor said.  It also says that this exemption is “necessarily quite narrow.”

Interns are not covered by Occupational Safety and Health Administration recordkeeping rules.  The Occupational Safety and Health Act applies to “employees,” defined as those who are “employed in a business of his employer which affects commerce.”  An uncompensated intern or volunteer is not considered an employee under the Occupational Safety and Health Act. Therefore, OSHA recordkeeping rules do not apply to unpaid interns or volunteers.

In an advisory opinion issued in 2004, the Wage and Hour Division declined to say whether college students participating in an internship program were interns or employees. In that case, the purpose of the internship was to teach “marketing, promotion, and statistical analysis to students in a real-world setting.”  The internship was structured like a college marketing course complete with program description, outline, syllabus and assignments.  The student interns worked a flexible, part-time schedule of approximately 7-10 hours per week.  They performed the work of a field marketing representative on-campus and were expected to assume the role of regular staff members of the company.  Their duties included wearing items of clothing embossed with the company logo while distributing stickers and flyers and evaluating the response of other students; collecting data on the composition of the campus population and that of the surrounding city; using online chat rooms to track the effectiveness of certain websites and the ability to drive online traffic to different sites; obtaining detailed contact information for five of the most popular club/bars, coffee shops, bookstores, record shops, beauty salons, clothing stores, and skate shops; and surveying 50 people on campus and compiling data to predict trends in the area and nationally.

Students were allowed to participate as interns only if they obtained college credit for the internship. Marketing and communication majors were preferred, but any student could be accepted if his/her academic adviser approved the course.  A faculty coordinator was responsible for advising the student interns and consulting with the company supervisor on a regular basis regarding the student’s performance. The company assumed responsibility for direct supervision of the student interns. A company supervisor consulted with the faculty coordinator about any problems the student encountered and submitted an evaluation of the student at the completion of the program. The company was not obligated to hire the student interns, and the students were under no obligation to accept employment with the company.

In this case, the Labor Department’s Wage and Hour Division said it was not clear that each of the six criteria was satisfied. The internship program satisfied the first criterion–the training program was similar to one that would be given in a school. The internship involved the students in real-life situations and provided them with an educational experience related to their course of study that they could not obtain in the classroom. The program also satisfied the second criterion–the internship inured to the benefit of the students, who received college credit for performing the internship, although it was not a required program.

The Wage and Hour Division could not determine, however, whether the internship program satisfied the third and fourth criteria. While it did not appear likely that the student interns displaced regular employees, since they worked a maximum of 10 hours per week, they were “expected to assume the role of regular staff members of the company.”

Nor did the company describe how closely the students were supervised and whether at any time the company’s operations would be impeded by virtue of the internship program. Also, the Wage and Hour Division did not know whether the employer would derive an immediate benefit from the activities of the students, who analyzed trends on campus and developed marketing information in a number of areas, including a list of contacts for a large number of area businesses, data on the “guerilla marketing” of the company’s product on the Internet, a detailed analysis of the population of the campus and the city, and a prediction of local and national trends.

Finally, the internship program appeared to meet the fifth and sixth criteria because the student interns were not necessarily entitled to a job with the company at the end of their internship and they were not compensated during the internship period.

In Harris v. Vector Marketing Corp., 753 F.Supp.2d 996 (N.D. Cal. 2010), the court noted that some courts have simply adopted the Labor Department test, but others have not: in one case, the court declined to rely on the Labor Department test and applied a more general test of whether the employee or the employer is the primary beneficiary of the trainee’s labor.  A third judicial approach has been “a somewhat middle position,” in which the court said the Labor Department test need not be strictly or rigidly applied, but that the “totality of the circumstances” controls whether a trainee should be deemed an employee for Fair Labor Standards Act purposes.  The rationale for this approach is that the original Supreme Court case on which the Labor Department based its six-factors test did not support an “all-or-nothing approach.”  The six criteria under this view, then, “are relevant, but not conclusive.”  The court in Harris adopted the Labor Department test, but favored “a looser application of the test, which focuses on the economic realities” of the relationship between the employer and the trainee.

The context of the Harris case was a bit unusual in that the issue before the court was the plaintiff’s motion to certify her suit as a collective action under the Fair Labor Standards Act. Nonetheless, in the course of considering the motion, which the court granted, the court applied the six factors of the test.

Vector was a direct sales company that sold kitchen cutlery and other items through sales representatives.  Before one could become a sales representative, s/he had to attend an initial training, which usually lasted three days. Trainees were not paid for this time, which, the plaintiff argued, violated the FLSA.

Vector argued that the first criterion of the Labor Department test – the training is similar to that given in an educational environment and “includes actual operation of the facilities of the employer” – was not met because its training did not include actual operation of its facilities.  The court rejected the argument, saying the factors of the test should not be applied rigidly.

With respect to the second criterion – the training is for the benefit of the trainee – the court made this observation, worth noting: the more fungible the skills taught at the training, the more of a benefit there is for the trainee.

There was no dispute between Vector and the plaintiff that the training program did not displace regular employees (the third criterion).

As evidence that the employer derived an immediate advantage from the activities of the interns (the fourth criterion), the plaintiff said trainees bought sample knife kits, created potential customer lists, set up appointments, and created potential recruit lists, which they turned over to their managers, all of which benefitted the employer.  The court concluded that this was sufficient, although not complete, “uniformity to suggest a common practice by Vector to ask trainees for these items.”  There would still be a benefit to Vector even if customer lists were not turned over to the managers if the trainees made appointments off these lists during training, the court said.  However, it did not determine whether this benefit constituted an immediate advantage, per  the Labor Department criterion.

The court concluded that there was enough evidence to show that interns were entitled to jobs at the conclusion of the internship (the fifth criterion).  Interns were presented with a sales representative agreement. Vector argued that this did not entitle interns to a job because 10 percent of those who completed training did not become sales representatives; 55 percent of the people invited to training did not show up; and 45 percent of the people who started the training did not finish it.

Nonetheless, the court concluded that Vector had a common practice of presenting trainees who completed the training with a sales representative agreement, and its evidence did not negate this.  Even if more than 10 percent of the trainees who finished the training did not go on to become sales representatives, the court said, “that does not mean that Vector did not offer those trainees jobs as sales representatives; they may have left on their own volition.”  Vector provided no evidence that it rejected trainees who completed the training.  Even if trainees could be rejected, e.g., for drug use or dishonesty, “this would not disprove there was a consistent practice capable of collective evaluation,” the court said.

Finally, regarding the sixth Labor Department criterion – whether the parties understood that interns did not get paid – the court said, “This is the only DOL factor that turns on subjective, rather than objective, evidence.”  However this question was resolved, it did not affect the plaintiff’s ability to bring her suit as a collective action under the Fair Labor Standards Act. “This is but one factor in the six-factor DOL test,” the court said.

The court in Harris was not ruling on the merits of the plaintiff’s suit; only that she had shown enough “commonality” among the potential class members to enable the court to certify the case as one allowed to proceed as a “collective” action under the Fair Labor Standards Act. Nonetheless, the case provides some additional information about what may or may not be relevant in satisfying the six Labor Department criteria for a legitimate internship program.

Reprinted with permission from APPA’s People to People.

GERARD P. PANARO is of counsel to Howe & Hutton, Ltd. in its Washington, D.C. office. He has over 30 years of experience in the practice of employment law and representation of nonprofit organizations in the District of Columbia and Maryland. He writes on employment law for every issue of APPA People to People newsletter.