The Changing Nature of Internships—When Is It OK to Not Pay an Intern?

In June 2013, a federal judge ruled that Fox Searchlight violated minimum wage laws for not paying two production interns. So what are those laws? Are unpaid internships ever OK?

Here are some answers to commonly asked questions about intern pay.

What laws determine when an intern should or should not be paid?

The Fair Labor Standards Act, or FLSA, regulates minimum wage and overtime for U.S. workers, including interns. The Department of Labor’s Wage and Hour Division is responsible for enforcing the law, and has a six-factor test to determine whether interns at private sector employers must be paid minimum wage.

According to the Department of Labor, an unpaid internship must meet all these criteria:

The internship is similar to training which would be given in an educational environment

It’s for the benefit of the intern

The intern doesn’t displace paid employees

The employer doesn’t benefit from work the intern is doing, “and on occasion its operations may actually be impeded.”

The intern isn’t promised a job at the end (unpaid “tryouts” aren’t allowed)

Both the intern and their boss understand its an unpaid position

So are unpaid internships ever OK?

Very rarely, for work done at for-profit companies. According to the Department of Labor’s test, companies can’t derive an “immediate advantage” from an intern’s work. And in the private sector, work that doesn’t benefit the company is rare.

“It’s fair to say most private-sector employers who employ volunteers are violating the law,” said David Yamada, a professor of law at Suffolk University in Boston.

What if they provide a stipend or lunch money? Does that count?

Probably not, assuming it’s a private sector employee covered by the FLSA, according to Yamada. If an internship at a for-profit employer doesn’t meet the factors laid out in the six-point test, they most likely have to pay their interns minimum wage.

What about internships at nonprofits?

According to the Department of Labor, nonprofits have an additional exception for unpaid interns that “volunteer their time.” The government’s guidelines state that “unpaid internships in the public sector and for non-profit charitable organizations…are generally permissible.”

What about gigs with the government?

For most interns on Capitol Hill, it’s perfectly legal for them to be working for free. Congress conveniently exempted itself from the Fair Labor Standards Act, meaning they don’t have to pay their interns. (It’s just one of many workplace laws that Congress doesn’t have to follow.) Most federal-level internships, including the White House’s program, are also unpaid.

Does getting college credit mean it’s OK to not get paid?

Not really. Many companies attempt to use academic credit as legal justification for an unpaid internships. But this week’s “Black Swan” ruling suggests college credit is not a reason to not pay your interns, a move that, as Yamada put it, opens an “interesting door.”

From the judge’s decision:

Receiving academic credit doesn’t mean an internship doesn’t need to be paid. (p. 32) NYLL stands for New York Labor Law.

“The law focuses on what employers are doing and if they’re offering a bona fide training program,” said Rachel Bien, an attorney who represented the plaintiffs in the Fox case.

If an intern feels they’re owed pay, what can they do?

They can either attempt to work it out with their employer, file a complaint with the Department of Labor, or sue.

Of course, many interns don’t act. The Department of Labor has said they only receive a handful of complaints per year. And in recent years, there have only been three major lawsuits alleging companies should have treated interns as employees.

When interns do bring a lawsuit, it often settles out of court. Employment lawyer Michael Tracy says that in his experience, interns that did complain were paid “quite quickly and quite well…That’s what keeps it going. You pay one or two interns that complain, and you keep 20 or 30 that don’t. That’s a good business model.”

According to Yamada, cases that settle out of court often involve a confidentiality clause that prevents the intern from talking about the settlement. Interns are rarely in a position to stick with a case through trial. “Few unpaid interns have the resources to wait five years for a case to resolve,” said Tracy. ”You need a moral crusader.”

Clarification:  The Department of Labor’s six-factor test grew out of a 1947 Supreme Court case, Walling v. Portland Terminal, in which the court ruled that trainees in a railroad’s program were not employees and thus didn’t have to be paid. Though the Department of Labor says all six criteria must be met, different court rulings have emphasized some more than others. The test provides guidelines, but the actual law is a bit murky.

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