Employment Law Issues For Internships

by | May 6, 2020 | Internships, Recruiting

Internships have become a rite of passage for college and university students. They are often viewed as the gateway to admission into more prestigious graduate schools and more financially rewarding employment. Many institutions of higher learning have incorporated internships into their undergraduate curriculum.1 These internships provide students with practical experience and enhance the educational process. According to Time Magazine more than 62 percent of the class of 2017 reported doing an internship at some point in their college career compared to 50 percent in 2008 and 17 percent in 1992. 1 This growth of student internships has been followed by an increase in attention to a number of lawsuits brought by interns against their sponsoring companies. This increased attention to lawsuits has created a perilous legal condition for both employers and educational institutions who sponsor or host internship programs that may result in lawsuits that may be expensive to defend whether well-founded or not. This Section will discuss employment law issues for organizations that host student interns or internship programs. Its analysis will focus primarily on federal employment law. It will highlight potential issues that organizations should be aware of and how they should structure their internship programs to decrease the risk of violating federal or state employment laws. Finally, this Section will examine the conflict among courts and governmental agencies regarding the test to be applied in determining whether an intern is, in fact, an employee, eligible to receive the protections afforded him or her under federal, state and local laws.

EMPLOYEE V. VOLUNTEER

Surprisingly there is no definition of “intern” in the federal employment laws. All workers can be basically classified as either an employee, an independent contractor, a volunteer, or a trainee. Is a paid student intern an “employee” of the organization hosting an internship program? Is an unpaid student intern a “volunteer” or a “trainee”? Does the intern attain a different status by virtue of the educational component of an internship program? It should be emphasized that the analysis of employee status varies depending upon the particular facts and circumstances of each potential situation and the law under which the analysis occurs. For example, The Fair Labor Standards Act’s (“FLSA”) minimum wage and overtime protections apply only in the context of an employer-employee relationship. Both terms are defined in section 203 of the FLSA. “Employer” is defined as “any person acting directly or indirectly in the interest of an employer in relation to an employee…” Employees are defined as “any individual employed by an employer” excluding certain people employed by public agencies, immediate family members and volunteers. Confirming the seemingly sweeping scope of the definition of employees, the Supreme Court has noted, “A broader or more comprehensive coverage of employees within  stated categories would be difficult to frame.” In short, the federal minimum wage and overtime law has one of the broadest definitions of “employee” that the Supreme Court can imagine.

VOLUNTEERS UNDER THE FLSA

Non-Public Entities In Tony and Susan Alamo Foundation v. Secretary of Labor, the Supreme Court was called upon to determine whether someone was a volunteer or an “employee” under the FLSA.

The Foundation ran numerous business enterprises that were staffed by the Foundation’s “associates” who were mostly “drug addicts, derelicts, or criminals before their conversion and rehabilitation by the Foundation.” These associates did not receive any cash payment but were provided with food, clothing, shelter, and other benefits. According to the Court, whether the associates were employees or volunteers revolved around whether they were individuals 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. …” If the associates worked “solely for his personal purpose or pleasure” then they could be considered volunteers. On appeal, the Supreme Court confirmed that the test of whether the associates were employees was one of “economic reality,” despite the associates’ testimony that they did not want or expect payment, noting that the employees’ wishes were not relevant. Indeed, the Supreme Court specifically held that the FLSA must be applied “even to those who would decline its protections.” Ultimately, the Supreme Court held that the associates were employees who had to be paid in accordance with the FLSA. 

While courts continue to recognize the analysis in Alamo Foundation as controlling, a number have reached the opposite conclusion under seemingly similar facts. The key to these cases appears to be, at least in part, the expectations of the employee and his or her state of dependency on the alleged employer: if the evidence shows the individual has a distinct purpose for volunteering and does not expect compensation in the form of cash, housing, food, clothing, or otherwise, the individual may not be an employee under the FLSA. Accordingly, any employer that uses unpaid “volunteers” should consider having those volunteers document their purposes for volunteering and confirm they have no expectation of any form of compensation. In the context of internships, it may be helpful to have the student document why they have selected the particular organization, and what they help to gain from the internship that they can take back to their academic career. 

Volunteers of Public Agencies 

After the Alamo Foundation opinion, the Department of Labor (or “DOL”) promulgated 29 C.F.R. 553.101 defining “volunteer.” This definition applies solely to organizations that are “public agencies” under the FLSA. Confusion often arises when either an employee of a public agency does volunteer work for that same agency, or when volunteers do the same work as paid employees. The regulation states: 

(a) An individual who performs hours of service for a public agency for civic, charitable, or humanitarian reasons, without promise, expectation or receipt of compensation for services rendered, is considered to be a volunteer during such hours. Individuals performing hours of service for such a public agency will be considered volunteers for the time so spent and not subject to sections [governing minimum wage and overtime payments] […]

(b) Individuals shall be considered volunteers only where their services are offered freely and without pressure or coercion, direct or implied, from an employer.

(c) An individual shall not be considered a volunteer if the individual is otherwise employed by the same public agency to perform the same type of services as those for which the individual proposes to volunteer.

Courts have held that this regulation can be distilled to “(1) a civic, charitable, or humanitarian reason for performing hours of service for a public agency, and (2) an absence of a promise, expectation or receipt of compensation for the performance of those services.” For example, in Cleveland v. City of Elmendorf, Tex., the Fifth Circuit held that volunteer police officers were not employees under the FLSA and the City was exempt from the overtime provisions of the FLSA. Although the police officers were able to maintain their peace officer license because the City listed them as commissioned officers this benefit “provided to volunteer police officers is not sufficient to render these persons employees under the FLSA.”

Likewise, in Purdham v. Fairfax County School Bd. the Fourth Circuit held that a “safety and security assistant” employed by the Fairfax County School Board was a “volunteer” when he acted as the coach of a high school golf team and therefore was not owed overtime wages. The court noted numerous facts that helped it to reach the conclusion that the employee was a volunteer coach. First, “Purdham was never coerced or pressured into becoming a coach and his employment as a security assistant is not dependent on his coaching; he is free to relinquish his role as coach at anytime [sic] without fear that doing so will have any impact on his full-time employment.” Second, although he was paid a stipend, because the regulations defining volunteer “omits any requirement that the motivation be “solely” for personal purpose… the regulatory definition does not require that the individual be exclusively, or even predominantly, motivated by civic, charitable, or humanitarian reasons.” Third, each coach of a particular sport is given the exact same stipend no matter how much effort they put towards coaching. Public agencies who utilize the services of paid interns (who are likely employees) should periodically review their volunteer lists to determine if any of these paid interns also volunteer and, if so, confirm that the roles are substantially different. Additionally, public agencies should be certain that paid interns are not under any pressure from their supervisors to volunteer their time back to the agency that they work for.

EMPLOYEE V. TRAINEE V. INTERN

In light of the startling increase in the number of lawsuits brought by unpaid interns, both employers and educational institutions should be aware that student internship programs could raise a number of issues regarding potential violations of wage and hour laws. The FLSA mandates employers to pay their employees a regular wage that is at least equivalent to the federal minimum wage. If the state minimum wage is higher than the federal minimum, the higher wage must be paid. In direct contrast to this requirement, a significant percentage of student internships are unpaid. Does having student interns work without receiving pay constitute a violation of the FLSA and other state wage and hour laws? Also, even if the host organization does not pay the student intern, are they nevertheless employees? Even if an unpaid student intern clearly understands that he or she is not entitled to wages for the time spent in training, does the work provided to the host organization provide more benefit to the host organization than training to the intern, thereby allowing the unpaid student intern to acquire employee status under the FLSA and state wage and hour laws.

The DOL takes a very narrow view of unpaid “trainees” and “interns.” As a threshold matter, the FLSA does not recognize unpaid interns as a specific category. Rather, a person dubbed an “intern” is usually either an “employee” subject to the Act or a “trainee” exempt from the minimum wage and overtime requirements, by Supreme Court precedent. Stated differently, for an intern to be unpaid, the intern must fall into the “trainee” exception. If a court rules that an intern is an employee then the employee is owed minimum wage and overtime for all hours worked by that employee.

1. The Supreme Court Creates Trainees

The “trainee” exception was established by the Supreme Court in Walling v. Portland Terminal Co., in 1947. In Walling a railroad held a week-long training course for prospective brakemen, the Supreme Court determined that the brakemen trainees were not covered employees under the FLSA. The Court found significant that the trainees “did not displace any of the regular employees, who [did] most of the work themselves, and my stand immediately by to supervise whatever the trainees do.” The trainees efforts “[did] not expedite the company business, but may, and sometimes [did], actually impede and retard it.” The Court held that the FLSA “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 … the [FLSA] was not intended to penalize [employers] for providing, free of charge, the same kind of instruction [as a vocational school] at a place and in a manner which would most greatly benefit the trainee.” The Court concluded that “[a]ccepting the unchallenged findings here that the railroads receive no ‘immediate advantage’ from any work done by the trainees, we hold that they are not employees within the Act’s meaning.” In other words, because the prospective brakemen received valuable knowledge that could have been obtained at a vocational school and the railroad received no immediate benefit from any work done by the prospective brakemen, this kept them from being employees under the FLSA.

2.The DOL Adopts Trainees

Well after Walling, the Department of Labor adopted a relatively stringent six requirement test for determining whether someone is an employee or a trainee. To be clear, all six requirements must be met (i.e., they are not factors):

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;

2. The training is for the benefit of the trainees;

3. The trainees do not displace regular employees, but work under close observation;

4. The employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion his operations may actually be impeded;

5. The trainees are not necessarily entitled to a job at the completion of the training period; and

6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training. The essentials of this test were first adopted in an administrative letter dated February 22, 1974, but as described below there has been substantial twists and turns since then.

3. The Courts Interpret Trainees

In Donovan v. American Airlines, Inc., the Fifth Circuit held that attendees of American Airlines flight attendant training school were not employees under the FLSA. American’s training center was located in Dallas, and American selected 800 people for training as flight attendants out of 70,000 applications to fill about 650 new flight attendant positions each year. In determining how many to accept, American took into account the number of people who would likely refuse employment after completing the course. Moreover, course participants who completed the course were not guaranteed a job, although most people who successfully completed the course were offered a job. Throughout the training, the individuals were not paid but they were offered meals and housing in dormitories provided by American. Course participants ultimately received  forty hours of training for four to five weeks in classrooms and aircraft mock-up facilities. The court noted that the instruction was designed to teach them how to work for American specifically, although of necessity the major part of the instruction was devoted to FAA requirements applicable to all flight attendants on any passenger airline. Finally, while the course participants were being trained, they did not supplement or replace the work of any American employee. After reviewing the evidence, the Fifth Circuit summed up the lower court’s approach to the issue as follows:

[The court] resolved the ultimate legal question by analyzing the “relative benefits flowing to trainee and company during the training period.” The facts that regular employees are not displaced by the trainees and that the training is expensive, without “immediate” benefit to American, “turn the benefit flow in the direction of the employee.” The court recognized the benefits accruing to American; the operation of the school is “by definition in the financial interest of American,” for companies generally have “little interest in creating a labor pool for their competitors.” Nevertheless, the court regarded the product of training as merely a labor pool of potential employees, offering American an insufficient benefit to bring the Act into play.”

The Fifth Circuit upheld that the district court’s holding and noted that the DOL’s interpretation of Portland Terminal supports the same conclusion. 

In Atkins v. General Motors Corp., the Fifth Circuit focused on the fourth element—that the employer derive no immediate advantage from the activities of the trainees and might have its operations impeded—before holding that GM’s trainees were not employees under the FLSA. In Atkins, the course of study was designed by General Motors and some of the classes were taught in the GM plant itself. Despite GM’s significant involvement in the training, the trainees understood they were not going to be paid for the class and were not guaranteed a job.

On appeal, the Fifth Circuit upheld the district court’s conclusion that “debugging” activities performed by the trainees did not help GM and at times damaged equipment. The district court had also found there was an isolated instance of trainees cleaning around the GM plant that was not directly related to training and another instance when trainees were used to uncrate a single piece of machinery. The Fifth Circuit agreed that both instances of work that derived to GM’s benefit were de minimis over a six to eight week training period. Given that all six factors under the DOL’s guidance were otherwise met, the Fifth Circuit upheld the district court’s determination that the trainees were not employees under the FLSA.3

4. Everyone Revisits the Issue

a. The 2010 DOL Fact Sheet for Students

In April 2010, the DOL issued Fact Sheet # 71, which rewrote the trainee test to specifically apply to student interns:

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.4

The Fact Sheet highlighted several factors that make the student more likely to be a trainee instead of an employee, including whether a college exercises oversight or provides educational credit, whether the skills learned are transferable to other employers, and whether or not the program is structured around a classroom or academic experience.

The DOL also explained what would make the student more likely to be an employee such as, performing the routine work of the business, or if whether the business is dependent on the work of the intern, or if the student is performing productive work.

b. Implications of the 2010 Fact Sheet 5

As noted earlier, the DOL previously took an all or nothing approach with respect to the application of its six part test. Thus, a student intern was an employee of the host organization unless the student satisfies each of the six criteria. The DOL has consistently stated (and some courts have agreed), that no single prong of the test is by itself dispositive. For example, the fact that a student intern and the host organization have an understanding that he is not entitled to a job at the completion of the internship would not have precluded a finding of employee status. An employer must have determined whether an internship satisfied each and every prong of the test. A finding of “employee” status means, at the very least, that the intern must be paid minimum wage and overtime pay for hours worked over forty in any workweek.

Paid interns are almost always considered to be employees of the host organization because paid employment would not satisfy the sixth prong of the DOL’s six part test (that the intern understands that he/she is not entitled to wages for the time spent in training). In contrast to the unpaid intern, the paid student intern accepts and works at the internship with the explicit understanding that he or she will be compensated for the time spent working for the host organization.

The fourth prong of the DOL test provides that an intern cannot provide an employer with any immediate advantage or benefit. For instance, the DOL was asked in 1994 about an internship program assisting in the daily management of hostels. The DOL was asked whether the arrangement whereby students received a free room (approximately $15 a night) in exchange for 25 hours of work per week would violate the FLSA for failure to pay minimum wage to the students. The DOL stated that “[b]ased on the information in your letter, it is our opinion that criterion number 4 discussed above would not be met since it is apparent the employer derives an immediate advantage from the duties performed by the interns in question. Therefore, such interns would be considered employees under the FLSA and subject to its minimum wage and overtime pay provisions.”

A corollary to the fourth prong of the test is the third prong which precludes the intern from displacing regular employees. This prong of the test can be particularly troublesome for a host organization that relies heavily on its interns to do tasks that otherwise would fall to regular employees. An organization should be particularly careful if it readily admits or states that, without its interns, it would have to hire regular employees to do the jobs undertaken by interns. Such statements or actions will be sufficient to fail the fourth prong of the DOL test and therefore would have exposed the employer to liability for violations of the FLSA.

Thus, an organization should pay particular attention to the third and fourth prongs of the DOL test. If it can be demonstrated that the employer gains an immediate benefit from the activities of the students, or if the intern displaces regular employees, the student would have been considered an employee under the FLSA and thus subject to the wage and overtime laws contained therein. As discussed more fully below, it would be good practice to have the student intern sign an agreement acknowledging satisfaction of each prong of the current DOL test (we discuss a recent change below). While this practice will not necessarily shield the hosting organization from liability under the FLSA, it will certainly strengthen the organization’s defense against a potential FLSA violation assuming the acknowledgement is truthful. Additionally, the organization should emphasize to prospective interns in any application materials that they are not employees of the organization. Such language would serve to put the student on notice of the internship status, and including such language in solicitation materials would alert the school about the classification.

Companies who are hosting internship programs and are uncertain whether such programs would create a potential liability under wage and hour laws, may want to consider asking the DOL for guidance regarding their particular programs by requesting an opinion letter from the agency. Although the opinion letters issued by the DOL on such subjects are not considered to be persuasive authority by courts, they are given deference in determining the question of whether the employer willfully violated wage hour law. In May 2013, for example, the President of the American Bar Association (“ABA”), Laurel G. Bellows, appealed to the DOL to allow law firms to offer unpaid internships to law school students in order to provide them with hands- on experience to successfully compete in the dwindling legal job market. In September 2013, the DOL advised that: if the tasks involved in the internship provide training similar to what would be received in an educational environment; if the internship doesn’t displace regular employees; and if the intern does not provide the law firm with an immediate advantage, the internship is permissible. The DOL stressed that, in order for the legal internship to pass muster, the firm must provide the law students with written assurances that they would receive educational experience related to the practice of law in a clinical program and be assigned exclusively to pro bono matters that don’t generate a fee for the firm. This clarification, however, has limited value to most for-profit host organizations whose internships do not allow for the segregation of tasks in the same efficient and well-documented manner as hours worked in a law firm. In a 2010 New York Times article regarding internships, the acting director of the DOL’s Wage and Hour Division, Nancy J. Leppink, stated: “If you’re a for-profit employer or you want to pursue an internship with a for- profit employer, there aren’t going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law.”

c. Recent Federal Court Developments

There is currently an ongoing dispute among the federal circuits relating to the amount of deference to be paid to the DOL’s six-factor analysis, with the Supreme Court refusing to weigh in on the question. In Kaplan v. Code Blue Billing and Coding, Inc., an FLSA claim brought in Florida’s Southern District by former interns placed into externships by MedVance Institute’s medical billing program, the court dismissed the intern’s claims, finding them to be non- employees and not eligible for the FLSA’s protection. The Court of Appeals for the Eleventh Circuit affirmed the dismissal. The interns subsequently petitioned the U.S. Supreme Court to offer guidance on the proper test to be applied in evaluating whether interns should be classified as employees for the purposes of state and federal wage and hour laws and the amount of deference to be given the DOL’s six factor analysis. On November 12, 2013, the Supreme Court denied the certiorari petition, leaving the federal circuits free to continue to apply different standards to the intern/employee analysis.

The Second Circuit Court of Appeals has become the most influential of federal courts in evaluating the protections to be afforded interns under wage and hour statutes. In June 11, 2013, Judge William H. Pauley of the Southern District of New York granted the motion to certify a class of unpaid interns in Eric Glatt v. Fox Searchlight Pictures. The unpaid interns, who had worked on production of the film Black Swan, claimed that they did not fall under the trainee exception promulgated by the DOL, because they were asked to perform routine tasks that would otherwise have been performed by regular employees. Noting the conflict among courts with respect to the interpretation of the trainee exception to the FLSA, the court chose to apply a “totality of the circumstances” standard to its evaluation of whether the interns would be considered covered employees under the FLSA. Weighing all of the factors, and giving clear deference to the DOL’s six-factor test, the court denied the defendant’s motion to dismiss the class, thereby allowing the interns to proceed as a class under the FLSA as “employees.” 

Prior to the court’s decision in Glatt, however, Judge Harold Baer of the Southern District of New York had reached an entirely opposite result in Wang v. The Hearst Corporation, a lawsuit brought by a class of unpaid interns working for the magazine publisher. Like the interns in Glatt, the Wang interns contended that they were required to perform routine tasks that could have been performed by regular employees, a contention that was supported by internal emails that instructed the staff to use unpaid interns rather than paid messengers to save costs. Contrary to Judge Pauley’s admonition about the irrelevance of the interns’ understanding that they would not be paid for their labor, Judge Baer considered, as an important factor, that the interns “understood prior to their internship that the position was unpaid.” Withfacts that were almost identical to those in Glatt and giving limited deference to the DOL’s six-factor test, Judge Baer ruled that the interns could not, as a matter of law, prove that they were employees under the FLSA and the New York Labor Law (“NYLL”) and denied the interns’ motion for class certification under the NYLL.

The attorneys representing the intern classes both in Glatt and in Wang appealed to the Second Circuit for an interlocutory order for clarification as to how cases brought by interns should be evaluated since the recent trend of interns filing suits began. The Second Circuit then ruled on the interlocutory orders between three and four years later.

In Glatt, at the Second Circuit, the Department of Labor submitted briefing in support of the Plaintiffs. However, the Second Circuit declined the DOL’s invitation to defer to the test laid out in the 2010 Fact Sheet. Instead, the court held that the proper test is whether the intern or the host organization is the primary beneficiary of the relationship. The Second Circuit pointed out that there were three benefits to the primary beneficiary test: (1) it focuses on what the intern receives for the work; (2) it gives courts flexibility to examine the economic reality between the intern and host organization; and (3) it acknowledges that the intern relationship is unique and should not be analyzed like typical employment because the intern expects to receive educational or vocational benefits that are not necessarily expected with normal employment. The Court then set out seven non-exhaustive factors that it believed courts should consider. We will discuss these factors in the context of an updated Department of Labor Fact Sheet.

Approximately two years later, the Second Circuit affirmed the District Court’s ruling in Wang granting summary judgment to the Hearst Corporation. The District Court found that using the Glatt factors, the interns were not employees as a matter of law.

Similarly, although with less press attention, the Eleventh Circuit has also declined to apply the DOL’s six factor test. In Schulman v. Collier Anesthesia, P.A., twenty-five former student nurses attempted to bring a class action, based on work they performed as part of their clinical curriculum which at the time was required under Florida to obtain their master’s degrees. Like the Second Circuit the Eleventh Circuit decided to follow the primary beneficiary test and instead relied on the Glatt factors.

The Ninth Circuit has also weighed in since Glatt. In Benjamin v. B & H Education, Inc., the court denied a motion to dismiss from students at cosmetology and hair design schools in California and Nevada. The plaintiffs alleged that because they performed numerous menial and unsupervised work and the schools operated as for-profit institutions that offer cosmetology services to the public through salons staffed by students who did not receive pay, they were in- fact employees entitled to minimum wage and overtime compensation under the FLSA. Here, the Ninth Circuit agreed with its sister courts that the primary beneficiary test is the best way to evaluate whether a worker is an intern or an employee under the FLSA.

d. The DOL’s Updated Fact Sheet

In light of the rejection of its six-factor test by appellate courts in California, New York, and Florida, and possibly the change from a change in presidential administrations, the Department of Labor issued an updated Fact Sheet #71 in January, 2018. In it, the DOL affirmed the primary beneficiary test and set out the following seven factors modeled on Glatt:

1. The extent to which 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 extent to which 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 extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.

4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar. 

5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.

6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.

7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

As the DOL put it, these non-exhaustive factors permits courts to examine the “economic reality” of the relationship to determine who is the “primary beneficiary” of the relationship.

e. State Courts

The confusion reigning in the federal courts is similarly found in state court cases. Due to the differing tests for determining employee status under state wage and hour laws, it is crucial that an organization evaluate its jurisdiction’s statutory and common law to determine whether interns are considered employees and thus subject to state minimum wage and hour laws. For example, the Massachusetts Department of Labor (“Mass. DOL”) was called on to answer a related question.6 The Mass. DOL stated that “employment through the NU [Northeastern University] co-op program is work under a training program in an educational institution, therefore, it is not an ‘occupation’ covered by the Massachusetts Fair Wage Law.” Unfortunately, the Mass. DOL did not on its own initiative answer the more important question for our purposes; i.e. is a student intern an employee for purposes of Massachusetts wage and hours laws. Nonetheless, the Mass. DOL’s analysis appears to lean towards a finding of non-employee status for student interns. Thus, it is possible that the Mass. DOL (or other state DOL), would find that a school sponsored program such as Northeastern’s co-op program precludes a student intern from seeking protection under the Massachusetts wage and hour laws. Additionally, the Mass. DOL opinion letter does not address the impact of compensation in its analysis. The Mass. DOL’s failure to address this issue does not clarify whether student interns are entitled to be paid minimum wage. As a result, it appears possible that an organization may compensate its student interns working under a school-sponsored internship program at a rate less than the Massachusetts minimum wage. 

WILL AN AGREEMENT PROTECT THE EMPLOYER?

Employers often require employees to sign an employment agreement. This agreement establishes the particulars of employment including compensation, sick pay, vacation pay, and duration of employment. Employees are often hired with the expectation that they will remain employed for an indefinite period of time. In contrast, student interns are usually engaged for a discrete, well defined period of time. These periods may range from a few weeks to many months and are often tied to the university’s academic calendar. Must these employers have the school (if school sponsored) or the intern sign an agreement establishing the terms and conditions of the intern’s engagement?

While departmental agencies and courts have not spoken directly this specific issue, it would appear to be good practice for an organization to have an agreement with the student intern and with a school (if a school sponsored internship) to document the understanding among all three parties relating to the seven factors outlined above. This agreement should establish the parameters of the internship, including its measurable goals. It should establish the degree of supervision the organization will have over the training and work of the student intern and, most importantly, it should establish the expectation, or lack thereof, regarding the payment of wages and/or the availability of permanent employment. In fact, any internship agreement or internship offer letter should use the seven factor’s outlined above by the DOL as a checklist of issues to address in the letter.

School sponsored internships and externships have become increasingly common and popular in recent years. As mentioned earlier, some undergraduate and graduate institutions condition graduation upon the successful completion of multiple internships of varying lengths. It is likely that these internships will require greater supervision and evaluation than non-school sponsored internships. Moreover, these agreements often specify the minimum number of hours a student is required to work and minimum amount of wages a student intern must be paid. In the case of a paid internship, it is likely the intern will also be an employee subject to the host of employment laws.

Despite the benefits of a well-designated internship agreement, however, neither an educational institution nor an employer should lull itself into believing that an internship agreement will effectively immunize it from legal challenge. For instance, even though the defendants were ultimately successful in Glatt, it took almost three years to secure a ruling in their favor. Even a well-constructed internship agreement, willingly signed by an intern, may not adequately protect an employer from liability for unpaid wages under the FLSA and under most state wage and hour laws.

Employment Law Issues For Internships

WORKERS COMPENSATION

Another potential employment law issue involving interns is whether they are employees for purposes of a state workers’ compensation act.7 For example, the New York Workers Compensation Act governs all workers’ compensation claims and is the exclusive remedy for employees who suffer work related injuries. Thus, if under New York law the interns are employees, then they are covered under the Worker’s Compensation Act. However, much as the employee/volunteer distinction was important under the FLSA, it is likewise crucial in determining the applicability of a state workers’ compensation statute. If the interns are deemed to be volunteers, then they are not covered under a workers’ compensation scheme and are not precluded from suing the organization for tort claims arising from their injuries sustained while volunteering. This presents serious potential liability issues to host organizations who may be faced with claims for damages far in excess of the state’s workers’ compensation scheme. A prudent host organization will consult with its insurance carrier to determine if it can secure coverage for any interns for tort claims arising from their volunteers.

For interns earning college credit or fulfilling graduation requirements, does the school’s workers’ compensation plan cover the student? While there is little case law and authority addressing this issue, a few courts have addressed the applicability of a workers’ compensation statute to an intern for school credit. For example, in a case arising in Colorado, the court had to determine whether a paid student intern in a university-sponsored program was deemed an employee of the hosting organization for purposes of workers’ compensation. The court held that the student was an employee of the organization for workers’ compensation purposes and moreover that unpaid interns were also covered under the school’s workers’ compensation plan.

In a New York case, the court addressed whether an unpaid student intern was covered under the school’s workers’ compensation plan. This court also held that the unpaid student intern was covered under the school’s workers’ compensation coverage, stating that where “necessary training and experience gained … is required for graduation and licensure, training is a thing of value and the equivalent of wages.”Whilethesecasesarenotdispositiveonthisissue,they do represent one avenue available to courts when confronted with these situations. As school sponsored internships become more common this issue will attract more court attention. While the answer is not fully clear, it is certainly possible that a paid student intern will qualify as an employee of the school under the various state workers’ compensation acts and that even unpaid interns may qualify under their schools’ policies. Workers compensation is completely a creature of state law so schools and hosting organizations are advised to consult an attorney in each state in which an intern will be interning to understand the likelihood of the intern being covered by workers compensation in that state.

May the actions of a student intern expose a host organization to liability? Vicarious liability may be imposed for the illegal acts of a company’s employees committed within the course of their employment. Vicarious liability hinges on whether the individual is an employee or independent contractor. While the law of each jurisdiction will vary, the law in Massachusetts, for example, would render most interns employees for the purposes of employer liability because an internship tends to be highly supervised relationship. Thus, although an intern may not be considered an employee under the FLSA and Massachusetts Wage and Hour Laws, that intern may nonetheless be considered an employee for liability purposes under state law.

In Texas, the common law for vicarious liability is less clear. The test is really meant to distinguish between employees and independent contractors and has five factors: (1) the independent nature of the worker’s business; (2) the worker’s obligation to furnish necessary tools, supplies, and materials to perform the job; (3) the worker’s right to control the progress of the work except about final results; (4) the time for which the worker is employed; and (5) the method of payment, whether by unit of time or by the job.

Even if the interns are not considered to be employees, an organization may be still be vicariously liable for negligence in selecting the intern or in directing the intern’s work. For example, if an organization does not perform a background check for an intern, it may be vicariously liable for its negligence in selection. This can be a particularly worrisome situation for financial institutions, healthcare providers, or educational institutions hosting interns. Given the prevalence of student internship programs, it is likely that an issue involving vicarious liability will arise in the near future. As of now, it is yet another unresolved area in the law involving student interns.

FEDERAL DISCRIMINATION STATUES

Broadly speaking, federal anti-discrimination laws apply to “employers” of a certain number of “employees” and prohibit discrimination with respect to “employment.” Given the central nature of “employment” to these laws, one might expect to find a carefully considered statutory definition of “employee.” Nope. Title VII unhelpfully defines “employee” as “an individual employed by an employer.”8 In the words of the Supreme Court, the definition “is completely circular and explains nothing.” 9

In light of the uncertain employment status of interns, may an intern nevertheless assert a federal or state discrimination claim against the host organization? The answer to this question may depend on the jurisdiction in which the internship is located.

On October 3, 2013, Judge P. Kevin Castel of the Southern District of New York ruled on state law claims of hostile work environment, quid pro quo sexual harassment and retaliation brought by a former unpaid intern working for a satellite television company. In Wang v. Phoenix Satellite Television, Inc., the plaintiff, Lihuan Wang brought claims under the New York State Human Rights Law (“NYSHRL”) and the New York City Human Rights Law (“NYCHRL”), claiming that her supervisor subjected her to a sexually hostile environment by making unwanted advances during a business trip and failed to hire her for full-time employment when she refused his advances. In an issue of first impression in the Second Circuit and in New York courts, the court concluded that an intern is not eligible for the protections provided under either the city or state anti- discrimination statutes. Citing the Second Circuit’s decision in O’Connor v. Davis, where the court dismissed a Title VII gender discrimination claim brought by an intern, the court concluded that, as under federal law, “compensation is a threshold issue in determining the existence of an employment relationship” under New York State and City law as well. The court firmly rejected Ms. Wang’s contention that the NYCHRL, which affords claimants broader protections than both its federal and state counterparts, would recognize an unpaid intern as an employee for the purposes of anti-discrimination protection.10

The result would have been quite different if Ms. Wang’s internship had been located in Oregon rather than in New York. On June 13, 2013, Oregon Governor John Kitzhaber signed into law a bill extending employment discrimination protection to interns under Oregon’s employment discrimination laws for workplace violations including sexual harassment, unlawful discrimination and retaliation for whistle-blowing. The definition of “intern” for the purposes of eligibility for this extended protection tracks the test for unpaid interns who are exempt from the FLSA, thereby providing protections to those individuals who are expressly excluded from federal protection.

Because of the unsettled state of both federal and state law and responding to the sustained increase in intern lawsuits, a number of corporations, including publishing giant Conde Nast, announced their decision to eliminate internship programs for 2014 and instead has replaced them with paid fellowship programs.

SUMMARY

While internships of all kinds have become more popular, there are many legal issues that are still unanswered. Until we have more answers, a hosting organization should be aware of the distinct likelihood that an intern will be considered an employee under federal law and thus should be paid minimum wage and overtime, will most likely be eligible for workers’ compensation if injured on the job and could impose vicarious liability on the host organization. As noted, these issues, and others, are subject to both federal law and the law of the state of the host organization. Hopefully, there will be more definitive answers in the years to come.

Nothing in this paper is intended to be, or is, legal advice.

Steven Garrett is an Associate with Boulette Golden & Marin L.L.P. in Austin, Texas. He is Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization. His telephone number is 512-732-9933 and his email address is steven@boulettegolden.com. Michael Brown is a Senior Partner in the Boston office of Seyfarth Shaw LLP. His telephone number is 617-946-4907 and his email address is mrbrown@seyfarth.com. Joanne Seltzer is a Shareholder with Jackson Lewis P.C. Her telephone number is 212-545-4070 and her email address is joanne.seltzer@jacksonlewis.com. 

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