Changes to Federal Law Allows More Unpaid Internships

With the Summer (finally) approaching, many employers are thinking of having “unpaid” internships for high school and college students. In recent years, however, such a program raised legal concerns over whether those interns were actually employees and had to be paid for their hours worked, as the U.S. Department of Labor under the Obama Administration had limited the circumstances in which an unpaid internship was truly “unpaid.”  However, USDOL guidance issued earlier in 2018 has changed all that – it will now be easier for employers to not pay their interns, as long as the “primary beneficiary” of the arrangement is the intern, i.e., a program that is primarily for the intern’s education and training.

For decades, the USDOL gave scant attention to unpaid internships, presumably because of the hidden bargain, whereby an intern got his/her foot-in-the-door in exchange for employers not having to pay him/her. Yet, in 2010, the Obama-era DOL changed that, and established a new six-part test, whereby an employer had to meet all six factors, or else the intern was considered an employee entitled to pay for all hours worked.  Those six factors included obvious ones, such as the internship being educational and under close supervision.  However, those factors also included more cumbersome ones, such as the employer not receiving any “immediate advantages” from the intern’s activities – that factor alone caused great consternation as it suggested interns could only be unpaid if the intern gave virtually no production or benefit to the company’s business.

In response to a number of objections from the business community as well as several successful legal challenges to aspects of the intern rule, in January 2018, the Trump-era DOL issued a revised guidance document. Rather than having to meet each and every factor, the new guidance creates a flexible rule, whereby seven factors are examined, to determine if the “primary beneficiary” of the relationship is the intern.  If so, the internship may be unpaid.

The seven factors include several addressing the extent that the arrangement is educational, academic and in the nature of training. In addition, other factors center around the understanding of the arrangement by the employer and intern, as well as eliminating the factor where an employer may not receive any advantage from the intern’s stay.  Rather than focusing on the absence of a productive contribution to the employer’s business, the DOL instead replaced that factor with a new one, where an examination is made of whether the intern’s stay complements the work of paid employees as opposed to displacing paid employees.

The bottom line is that employers considering taking on Summer interns can rest a little easier. As long as the primary intent of an intern program is the training and education of the intern, along with a clear understanding of the unpaid nature of the arrangement, an employer can feel secure that it will not owe will not be due that intern, even if the employer gets some marginal “work” out of the intern along the way.

If you have any questions about internship programs or wage and hour laws, please contact any member of Archer & Greiner’s Labor Group in Haddonfield, N.J., at (856) 795-2121, in Princeton, N.J., at (609) 580-3700, in Hackensack, N.J., at (201) 342-6000, in Philadelphia, Pa., at (215) 963-3300, or in Wilmington, Del., at (302) 777-4350.