Volunteer programs and unpaid internship are useful tools — not only for companies, but also for young people seeking valuable experience. Plus, many organizations rely on volunteers to help carry out their missions. With Americans living longer, retirement does not necessarily mean that that we are going to live out our days playing bridge and walking the dog; many are looking for unpaid opportunities as a way to give back and to still be productive.
C2 recently fielded an inquiry from one of its government contracting clients who wanted to create a rotating staff of volunteers and/or interns as a way to help the company develop new talent and provide an avenue for students to gain some “on the job training”. But as our client soon learned, setting up a legally compliant internship or volunteer program within your organization is not always easy.
Unfortunately, the Fair Labor Standards Act (FLSA) prohibits for-profit companies from engaging volunteers. All individuals performing work at a for-profit company must be compensated no less than minimum wage for all hours worked. Only companies falling under public service, religious or humanitarian objectives may engage volunteers. For example, charities, civic organizations, hospitals, and other tax exempt, not-for-profit organizations are all able to utilize volunteers. Organizations are not required to have individuals complete any specific paper work to be a volunteer – although most do utilize a short “volunteer application” as a way of keeping track of the volunteers and the services they perform.
B. Unpaid Internships
For-profit companies, on the other hand, can lawfully utilize unpaid internships – albeit, under the right circumstances. According to the U.S. Supreme Court, the term to “suffer or permit to work” found in the text of the FLSA does not make a person whose work serves only his or her own interest an employee of a company. Unpaid internships are derived from this concept because, when used properly, they are primarily for the learning benefit of the intern and provide the company little to no commercial benefit. Unlike with volunteers, bringing on interns involves a good bit of analysis and should only be undertaken if the unpaid internship satisfies the following U.S. Department of Labor (DOL) criteria:
- The internship is similar to training which would be given in an educational environment; even though it includes actual operation of the facilities of the employer;
- The internship experience is for the benefit only of the intern;
- The intern does not displace regular employees, but works under close supervision of existing employees of the company;
- The company that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations could actually be impeded;
- The intern is not necessarily entitled to a job at the company at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
If all of the factors listed above are satisfied, then a valid unpaid internship exists. The net result (and the most important aspect for employers) is that an employment relationship does not exist under the FLSA, and the Act’s minimum wage and overtime provisions do not apply to the intern(s).
As a practical matter, the more that an unpaid internship is structured around a classroom or academic experience as opposed to the employer’s actual operations, the more likely the DOL will view it as an extension of the person’s education and a valid internship. Frequently, a college or university exercises some oversight over the internship program and provides educational credits for successful completion of the internship.
Another hallmark of valid internships is that the intern actually learns skills that are applicable in multiple employment settings, and not solely for the company at which they are interning. If the employer gains more than a cursory benefit from the intern’s work; the intern is likely engaged in the operations of the company and may be viewed by the DOL as an employee who should be paid for the hours worked. Interns should never be used as substitutes for regular workers or to enhance a company’s existing workforce during busier time periods (i.e., during tourist season). The DOL has found such practices to be an unlawful use of interns because, in these situations, the individuals’ work benefited the company more than themselves and therefore they should have been classified as employees and paid at least minimum wage. Conversely, if the employer is providing “job shadowing” opportunities for the individuals that would allow them to learn under the close and constant supervision of regular employees, but the intern performs only minimal substantive work, the DOL is likely to view the arrangement as a bona fide education experience and therefore a valid unpaid internship.
Lastly, the internship should have a defined beginning and end date. Open ended relationships are more indicative of an employment relationship rather than an internship. An important side not: unpaid internship should not be used by the employer as a trial period or probationary period for individuals seeking employment, and “regular employment” should never be made contingent upon successful completion of an unpaid internship.
C. Mistakes can be Costly
After going through the various requirements with them, our client wisely decided to work with an area university to help the client set up an unpaid internship rather than trying to create one on its own. Organizations should carefully evaluate the DOL’s guidelines surrounding volunteers and unpaid interns before creating such a program. A recent settlement provides a good cautionary tale. A group of unpaid interns who worked for FOX during the filming of the movie Black Swan were awarded from $495 to $7,500 dollars each due to being misclassified as unpaid interns when they should have been classified as employees. The individual settlement amounts may seem small, especially to a large corporation such as Fox. However, Fox paid legal fees in excess of $200,000 defending the case. The morale of the story: it pays to get classification issues correct from the outset; don’t wait for the DOL or an employee’s lawyer to knock on your door before evaluating whether your volunteer and internship programs are compliant with the FLSA and DOL regulations.
C2 provides strategic HR outsourcing to clients who want to develop optimal workforce strategies and solutions to allow them to be more competitive and profitable. C2 blog posts are intended for educational and informational purposes only.