Unpaid internships have long been viewed as a helpful resource for both companies and students: businesses receive free (or cheap) labor and interns-wantedstudents gain valuable experience and skills. However, a district court highlights what federal law has long proclaimed: unpaid (and underpaid) internships are illegal under federal employment law.

Earlier this year, a federal judge in New York ruled that Fox Searchlight Pictures violated minimum wage and overtime laws by not paying interns for their work on the 2010 film Black Swan. Condé Nast is announcing an end to its internship program following a similar lawsuit.

Many companies bring on interns to help tackle projects and add much-needed capacity. However, even though interns are not full-time permanent employees, they are still covered by federal employment laws and there are very few circumstances where it is legal for an internship to be unpaid or underpaid. Interns fall under the Fair Labor Standards Act (FLSA) and therefore are subject to minimum wage laws. These laws primarily concern for-profit businesses; the laws surrounding intern pay are less strict for non-profits and charities because of these organizations’ need for volunteers.

Unpaid internships are legal only if the following six provisions apply:

  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 or students;
  3. The trainees or students do not displace regular employees, but work under their close observation;
  4. The employer that provides the training derives no immediate advantage from the activities of the trainees or students, and on occasion his operations may actually be impeded;
  5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and
  6. The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

It is usually Provision 4 that provides the most problems for employers, as it is quite difficult to show that your company has received no benefit from the employment of your intern(s). Basically, an internship has to exist primarily for the benefit of the intern, not for you, the employer, which is quite rare.

Essentially, you can’t hire an intern to perform the work a standard employee would perform and fail to pay that intern – even if the intern is fully aware that he/she will not receive wages. As the court stated, under the FSLA, an employee cannot waive the entitlement to wages.

While the current ruling only applies to the Southern District of New York, it’s expected that these lawsuits will continue to increase and expand to other industries. This means that if you are caught hiring an unpaid intern, the consequences could be costly: under FSLA, winning plaintiffs are usually entitled to double the amount of improperly unpaid back wages (also known as liquidated damages), as well as the recovery of attorney fees.

Before you hire a team of eager interns to increase your workforce for free, take a close look at FSLA and consult your company’s attorney. “Free work” may end up being quite costly.

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