What Constitutes an Unpaid Internship Agreement?
Unpaid internship agreements are contracts between those looking for employment and employers. They set out the obligations of each party and broadly the terms under which the parties are operating. An internship is generally unpaid work experience which gives an intern exposure to an environment and the opportunity to acquire skills. The clear purpose of an unpaid internship is work experience, rather than work. There will be occasions when there is a short-term business need (e.g. a busy period) and the internship is created for the period, or even if there is no business need, the internships are created to give young people work exposure.
An internship is different to an apprenticeship and must not be confused with it . An apprentice is a worker, and as such is entitled to receive the minimum wage for the work that he/she completes. The apprenticeship will seek to provide on the job training but the apprentice will be a worker during the apprenticeship and as mentioned will be entitled to a minimum wage. An intern on the other hand is not a worker, but merely a fortunate individual who has secured a placement with the business.
Whilst we touched on the legality of internship agreements a little above, it is important to stress that they can be a very useful tool for employers to set the ground rules for the relationship. An internship agreement can be used to force the intern to keep confidential information confidential, and can also be used by the employer to limit its liability to the intern.
Legal Mandates for Unpaid Interns
To determine whether interns are considered employees under the law, courts and government agencies consider various tests. Generally, below are the factors in determining if a person is a hired employee or intern:
- Is the internship an integral part of the employer’s operation?
- Is the internship for the sole benefit of the intern?
- Does the intern work under close supervision of regular employees?
- Does the employer derive any immediate advantage from the activities of the intern?
- Does the intern have any understanding with the employer about compensation or the expectation of compensation?
- Do the parties understand there is no expectation of compensation?
- Is the internship limited in duration?
- Does the formal education coursework provided by the internship complement the training given at the educational institution?
- Are there any promise made regarding a job or employment after the internship?
- Are any benefits given to the intern?
Based on these factors, if the employer did not benefit from the work performed by the interns (for the most part), the internship is not considered an employee-employer relationship and, therefore, would not require a wage and hour consideration.
So what does the Department of Labor say about unpaid internships? According to the Federal Labor Standards Act (FLSA) regulations, there are six named criteria for evaluating the unpaid intern issue. All of the following must be met for the internship not to be considered employment under the federal wage law.
Fundamental Aspects of an Unpaid Internship Agreement
An unpaid internship agreement should contain the essential terms of the internship. Essential terms include the purpose of an internship, the duration of an internship, the general responsibilities of the intern, and any rights of the intern. Some other terms to consider including are:
DURATION OF INTERNSHIP
State the beginning and ending dates for the internship. If applicable, a specific timetable for any extensions and the parties’ agreement to in writing should be included. Academic calendars should also be allowed for when determining the timing of the internship.
RULES OF COMPANY
The rules and regulations of the company should be stated. If no rules or regulations are applicable, then state that "All company policies shall apply to the intern as if the intern were a company employee." The company should be sure to include that any policies and rules should be "reasonably applied."
CONFIDENTIALITY PROVISIONS
There may be some information that the intern may become privy to while interning. It is important to protect your business in this instance. Interns can be given limited access to confidential information with a confidentiality agreement.
NON-COMPETITION
It some cases, the intern may become privy to the business strategies of the company, which could cause the company economic harm if the intern shared such information with third parties who compete with the company. Therefore, a business might want to include a "non-competitive" clause in the intern’s agreement.
EXCLUSIVITY OF CONTRACT
This provision generally states that no other agreements between the company and the intern are binding unless they are in writing and signed by the parties. Having the terms of the internship written down can help to avoid any unforeseen problems for either party.
Pros and Cons of Unpaid Internships
Internships, regardless of whether they are unpaid, have the potential to provide advantages and disadvantages to both the intern and the employer.
Benefits to the Intern
From the intern’s perspective, there is the benefit of obtaining skills, workplace experience, résumé building, and industry professional networking opportunities. The experience will often help the intern obtain full-time employment. The employer benefits, as the intern may be performing work for the company for less expense than a traditional employee who would be entitled to receive payment for the work.
Interns who have participated in unpaid internship programs have reported that these programs have helped them find full-time positions following law school and have provided them opportunities to meet attorneys and other professionals in their field.
Disadvantages to the Intern
Interns also report that unpaid internships can be difficult. Apart from the financial hardship of not being paid, unpaid interns also tend to be at a disadvantage when competing against students who have been able to participate in other activities during the summer, such as working in paid summer jobs, working for a family business, conducting independent research or working on research papers, or taking extra coursework. Interns also may find that because they have been working in unpaid offices during the summer, they have had less opportunity to assume leadership positions in other school activities.
Some interns report that they do not feel like they receive appropriate legal experience from unpaid summer internships, which can leave them at a disadvantage when competing with classmates who have spent their summer months working in a high paying job at firms offering opportunities to gain hands-on legal experience. Unpaid interns also report that they do not feel there are sufficient positions to allow students to apply to all of the employers who are of interest to them. It can be difficult to determine which positions are best for a given individual. Interns who receive an offer from one employer find it difficult to delay making their decision or to decline offers without knowing what other unpaid summer positions they will receive offers from. An additional cost for some interns who have little experience with the job market is the cost of securing an appropriate interview outfit.
Finally, participants in unpaid internships may also feel like they are at a disadvantage vis-à-vis full-time employees because they have less input into their work assignments and are unable to socialize with existing employees in the same manner that regular employees might.
Disadvantages to Employers
Employers may find that interns are not engaged in the same manner that full-time employees would be. The work of a summer intern cannot be counted on to be as significant or attention demanding as a legal assistant or law clerk. This can be problematic for an employer who counts on the work of a lower-level staff member and bills time to the client based on the realism of estimates of that work product. In addition, employers are confronted with the risk that the intern may bring substantive claims against them based upon the nature of the internship such as discrimination or harassment.
Interns may also require more supervision than is available in a summer with fewer employees present in a firm. Interns also may be subjected to negative comments by full-time employees who do not understand the intern’s purpose at the firm or are resentful of the time being taken from their day to supervise the intern.
Employers often find that interns do not stay through difficult work days. Unbelievably, they find an intern leaving right before a large deadline or project is completed.
Best Practices in Unpaid Internship Programs
A sound, best practice for setting up and running an unpaid internship program is to draft the unpaid internship plan before tweaking or modifying the existing unpaid internship program (or adding an internship program where one did not previously exist). This can be an eye opener. Often, when the employer actually looks at its written plan with the goal of updating it to comply with law, the employer will find enough inconsistencies with the actual program to make the revision a moot point. Instead, the employer needs to spend some time really reviewing the current internship program – who is receiving school credit , their hours, their duties, and what the interns are being told about the program. It is recommended that the employer then discuss and outline clearly, specifically and in detail, the responsibilities of both the interns, the human resources professional administering the program, and the supervisor overseeing the interns’ work. Employers should ask themselves the following questions:
Answering these questions thoughtfully will set the stage for not just complying with the labor laws, but also for an outstanding, well-run, successful, and compliant unpaid internship program.
How to Write an Effective Unpaid Internship Agreement
Employers should adopt a thorough unpaid internship agreement to help meet the requirements of the above test. Additionally, employers should give their interns a copy of this internship agreement and have them sign it before they start their internship. The courts will consider the internship agreement when determining whether an intern can sue his or her employer for unpaid wages. Therefore, having an unpaid internship agreement in place is very important to consider before you allow a potential employee to be an unpaid intern.
Here are five steps an employer should take to ensure that their unpaid internship agreement is effective for meeting the above test:
- – Ensure interns are provided with the opportunity to learn from your employees -The purpose of granting the intern the opportunity to learn directly from your employees is to ensure that your intern cannot plead that you "simply" had him or her conduct menial tasks for your employees. To meet this goal, employers may want to create opportunities for interns to shadow employees, obtain training materials, participate in social functions, or perform other tasks that involve direct interaction with others employees.
- – Ensure interns cannot displace any paid employees -This step is crucial because if your employer allows interns to displace any paid employees or replace any employees who leave your organization, then an intern may be eligible to sue for unpaid wages. To avoid this problem, employers should ensure that their interns can not displace any paid employees.
- – Ensure the intern performs work that is primarily for the benefit of the intern and/or educational institution finds that the intern is not entitled to be paid for his or her work. For example, an unpaid internship could satisfy the benefit prong of the above test if the intern: But an intern who completes tasks and performs work that is primarily designed to benefit the employer is unlikely to be exempt from the minimum wage requirements. In addition, if the intern is receiving additional school credit for his or her work, but completes tasks and performs work that is designed for the employer’s benefit, an intern is likely entitled to be paid.
One way to ensure an intern can prove that he or she put in the time and effort to learn valuable job skills is to assign him or her a clear task to complete. By assigning a task to complete, you will create concrete proof that an intern worked towards accomplishing a specific goal (and that his or her work was not for the employer’s benefit), and you also will create evidence that an intern completed the task (and thus devoted time and effort to learning how to do the task).
Step 4 – Keeping inappropriate records -Certain records, such as time sheets, may be used by the courts to determine the extent to which the employer benefited from the internship. This is because courts will assume that if an employer maintains time records for its interns, the internship is not for the benefit of the intern, but rather is designed for the employer’s benefit to accomplish its work. For this reason, changes to an intern’s hours on an employers’ time sheet before submitting them for payroll processing will create additional evidence that the employer benefitted from the internship.
Step 5 – Compensation Considerations – Interns must not receive compensation for the work they performed during their internship. In addition to a $1,000 fine, employers could be liable for back wages, benefits that would have been payable, such as health insurance, and legal fees for failing to pay their interns.
Case Studies and Practical Examples
Case studies and examples of unpaid internship agreements help to emphasize and underscore the benefits of compliance with FLSA rules, pre-existing-language in opportunity letters, and resolution of unpaid internships. As discussed throughout this post, employers now have a much narrower lane to work within per the Bolt case, at least in terms of the program being truly educational in nature. In fact, some cases have gone so far as to characterize the legislation requiring the classification of certain interns as wage devices.
For example, one paid internship program at Columbia University did attempt to achieve the educational focus. The prestigious Ivy League institution set aside approximately 200 paid internships for undergraduate students during the summer of 2014. Shortly thereafter, four Columbia students (Frank Garrison, Andrew Karpin, Kevin Ross, and Matthew Verrilli) filed a class-action law suit in New York state court. These interns claimed that they were actually employees and entitled to the same pay and benefits as other Columbia employees. The federal District Court determined that because these interns took classes and "also had to do their own laundry and clean up after themselves" they were, in fact, interns and not employees. Such examples have been quite rare in recent times and earned significant publicity. The fact that the interns took out their own trash and folded their own laundry is hardly indicative of an educational based program. Notwithstanding , the idea that the university and the court were willing to go that length to demonstrate that the program was ostensibly "educational" is telling.
In the past, some courts have recognized that the internship experience, though unpaid, could be beneficial to the student. Hautop v. Lumber Liquidators Holding, Inc., 2017 U.S. Dist. LEXIS 136145 (N.D. Ill. 2017 performed by plaintiffs themselves generally rejected the interns’ claims. The interns all attended school near various Lumber Liquidators store locations and, therefore, sought employment at Lumber Liquidators during their breaks from school. Thus, the problem with the interns’ claims, according to the district court was not that they were in fact employees; it was that they were not "actually seeking a professional experience." The district court rejected the interns’ grievances due to the fact that their stated intent for the internships was to both gain professional work experience and earn money. Because the interns did not establish that their "primary benefit" was the receipt of "academic credit," they were denied their claims.
The issue with Hautop was more about the level of work performed than the overall merits of the claim. Therefore, the interns simply met a higher burden of proof to show that the internship was educational-based. So, even if you wanted to find some solace that educational based internship programs were still in the cards for employers, addressing the legal issues left unresolved by the Hurst case may be critical to avoiding future litigation.