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Unpaid Interns: No Such Thing as a Free Lunch

As the daylight lingers longer into the evening and bathing suits replace down winter jackets, we are often asked some variation of the following question: “Do I really have to pay our summer clerk? Can’t I just hire her as an unpaid intern? She’ll gain incredible experience and meet lots of fabulous people (including me!) -- so isn’t that compensation enough?!?”

Short Answer. Our long, eloquent answer is below, but if you prefer to cut straight to the chase, the short answer is: No, not unless she really, truly, in-all-honesty is an actual “trainee” (which is a fairly rare phenomenon in most business settings).

Longer Explanation. The California Division of Labor Standards Enforcement (DLSE) issued an opinion letter in 2010 to address the stringent requirements employers must meet in order to have unpaid interns under California law.  This DLSE opinion letter confirmed that California follows the federal Department of Labor’s (DOL) same strict factors in analyzing the classification of interns.   The DLSE explained that if all six of the following criteria apply, the company can consider the intern as a “trainee,” not an employee, under California law:

1. The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school (i.e., a curriculum is followed and the student is under continued and direct supervision either by representatives of the school or by employees of the business); and

2. The training is intended to benefit the trainee/student rather than to meet the labor needs of the business; and

3. The trainee/student does not displace a regular employee, does not fill a vacant position, does not relieve an employee of assigned duties, and does not perform services that, although not ordinarily performed by employees, clearly are of benefit to the business; and

4. The employer that provides the training derives no immediate advantage from the activities of the trainee/student and, on occasion, the employer’s operations may actually be impeded; and

5. The trainee/student is not necessarily entitled to a job at the conclusion of the training period; and

6. The employer and the trainee/student understand that the trainee/student is not entitled to wages for the time spent in training.

Essentially, the six criteria require that the internship be of benefit to the intern, with the employer gaining no benefit.  In practice, this standard is very difficult to meet - even for government and nonprofit agencies.

Hollywood provided us with a highly-publicized example of this when Fox Searchlight hired unpaid interns to work on the set of the movie Black Swan.  In its published opinion, the federal district court found that the unpaid interns should have been classified as employees covered by the Fair Labor Standards Act, explaining that the interns “worked as paid employees work, providing an immediate advantage to their employer and performing low-level tasks not requiring specialized training.” The court also noted: “The benefits they may have received - such as knowledge of how a production or accounting office functions or references for future jobs - are the results of simply having worked as any other employee works, not of internships designed to be uniquely educational to the interns and of little utility to the employer.”  

As Fox Searchlight learned, improperly classifying employees as unpaid interns can impact a company’s finances and reputation.  Unless they legitimately meet all six of the specified requirements for “trainees,” workers should be classified as employees, even if they wear flip-flops to work and carry a backpack. If the DLSE finds that an employer was improperly classifying employees as unpaid interns, it can require the employer to pay significant damages and penalties, including unpaid wages, overtime, and waiting time penalties.  Current or former interns can also bring a lawsuit against an employer violating these rules, which means more cost, hassle, and headache for an employer, as well as the business uncertainty any litigation defendant faces.

If you are in the small minority of organizations where an intern’s role will unquestionably meet the six criteria described above, we recommend that you put the expectations in writing, explaining in clear language that the intern is not entitled to a job at the conclusion of the training period and will not be paid for the training time.  We also recommend that you closely monitor the intern’s actual job duties and roles throughout the course of their work and ensure that the intern’s supervisors understand the specific requirements to maintain their status as an unpaid intern.  However, in most instances, what many people might consider as an “intern” should technically be classified as a paid employee because the vast majority of intern positions will not meet the stringent criteria.

Conclusion. We all delight in finding a bargain, most especially those rare instances when we can acquire value from something that we don’t even have to pay for. But in the employment arena, as in much of life, the trite cliché of the illusory free lunch rings true: there is no such thing as a free employee (unless she really, truly qualifies as a “trainee”).


Authors: Beth Arnese and Brittny Bottorff

The Maier Law Group helps companies ensure that their policies and practices comply with the relevant data security and cybersecurity laws and regulations.  We also offer tailored cybersecurity training for companies. Please contact us at info@maierlawgroup.com for more information.

This article has been prepared for general informational purposes only and does not constitute advertising, solicitation, or legal advice. If you have questions about a particular matter, please contact the Maier Law Group directly.

Beth Arnese