Don’t Know When to Pay Your Interns? You May Be in Trouble
Internships are an undeniably popular topic in the media these days. Setting aside whether or not the concept itself is ethical, companies with internship programs need to pay careful attention to the recent crop of internship-related lawsuits and learn from them. Legally speaking, the internship is a more complicated category than you might think, and misclassifying employees as unpaid interns can come back to bite your organization. Not to say that your organization is willfully breaking the law, but, that the legal guidelines surrounding internships are specific and strict, and you may not even realize that you’ve misclassified an employee until you’re battling it out in court.
Consider the case of Elite Model Management. After former intern Dajia Davenport brought a $50 million class action lawsuit against the company, Elite settled out of court, paying each of the approximately 150 interns involved in the lawsuit an amount between $700 and $1750, for a total of $450,000. According to Fashionista, this was “the largest settlement of an intern class action to date.”
Warner Music Group (WMG) is currently embroiled in a class action internship lawsuit as well, and the damages in this case could well be much higher than the Elite settlement. “There is a class that was certified of approximately 3,000 unpaid interns, and they’re suing for unpaid wages,” explains Courtney Nichols, an associate at century-old law firm Plunkett Cooney.
Nichols, a member of the firm’s labor and employment practice group, runs us through some quick, estimated calculations regarding the WMG lawsuit: say each of the 3,000 unpaid interns worked an average of 40 hours per week. Multiply that by an average minimum wage of about $8, and that comes to be $320 per week. If each intern worked for a period of 12 weeks, then each intern could be owed $3800.
“Times that by 3,000 employees, and your potential damages are $11.5 million,” adds Nichols. “Using rough math, that’s the potential exposure large companies have if they misclassify individuals.”
Inviting Civil Lawsuits
While misclassifying employees could bring penalization from the Department of Labor (DOL), the entity responsible for enforcing the Fair Labor Standards Act (FLSA), Nichols says that class action lawsuits are the biggest danger to employers whose internship programs — knowingly or not — violate the FLSA’s strict regulations.
Nichols explains that class action lawsuits and internships are two popular topics in the media right now. Combine them together, and your organization faces a(n) (im)perfect storm. “Right now class action lawsuits are hot. Period. Especially with regards to FLSA, for unpaid wages,” she says. “Internships are another hot topic. You’re combining these two hot topics, and there’s a potential exposure there.”
According to Nichols, class action lawsuits are popular because of the amount of damages involved. “So, I just did that quick calculation [regarding the WMG lawsuit]: you can get over $11 million in the blink of an eye. So that will catch somebody’s eye,” she explains.
As for internships, those are popular because of sheer publicity: media outlets are talking about the WMG lawsuit right now; last year, two interns sued Fox Searchlight for unpaid wages. When big-name companies become embroiled in high-profile cases like these, people take notice. “So you get a couple of these [cases] out there, and what you’re essentially doing is advertising to potential plaintiffs,” Nichols says. “You’re sort of planting the seed in not only the intern’s mind, but the attorney’s mind, that there might be a potential basis for recovery there.”
Nichols also notes that, aside from the potential damages, class action lawsuits open employers up to all sorts of bad publicity. “These companies are having to defend these positions that they’ve taken, and it may turn out that they’re wrong,” she says. “It’s just not something that you want to deal with.”
“The more publicity these cases get, the more widespread they’re going to become, especially when we’re dealing with big, big defendants like Fox and Warner Bros.,” Nichols says.
Protecting Your Organization
With the popularity of internship-related class action lawsuits, Nichols encourages all employers to be super vigilant in their hiring practices, especially when it comes to internship programs. “We’re [Plunkett Cooney] trying to advise all clients that they need to look at this immediately — before they bring someone on for the summer, because it might be too late,” she says. “Hopefully, employers are looking at this more critically now more than ever and doing the analysis prior to beginning internships programs.”
But what exactly do employers need to be looking for?
Companies don’t really get to decide for themselves who is an unpaid intern and who is an employee. Under the FLSA, a person can only be considered an intern if their position meets the following six criteria:
1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship;
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
“With regard to those criteria, all need to be met,” Nichols says. “If one is missing, then there’s an employment relationship, and therefore the FLSA and your state wage laws apply. If all six factors are met, no employment relationship exists.”
But what about paid internships? More than simply being the result of a generous company’s largesse, paid internships are, again, bound by the FLSA’s aforementioned criteria. “If you’re going to bring somebody in and they’re going to be an intern, you have to do this six criteria analysis,” Nichols says. “If you as the employer determine, ‘You know what, there’s probably an employment relationship here, according to these criteria published by the DOL,’ then you can call them an intern all you want, but you have to pay them.”
Nichols advises that companies who are considering hiring interns look to the DOL’s fact sheet No. 71, “Internship Programs Under the Fair Labor Standards Act,” for guidance. “That fact sheet will outline the background of this issue and the test for unpaid interns,” she says. “It’s really important for the businesses to sit down and assess those six criteria and make sure that they’re going to meet all criteria before classifying an individual as an unpaid intern and therefore not paying minimum wage or overtime.”
Nichols cautions nonprofit organizations against disregarding the FLSA’s employment regulations. While the FLSA does have some exemptions for nonprofits, they are narrow. “If you’re a nonprofit, and you’re trying to determine whether or not you have to comply with this law, I would look first to make sure that you fit in the narrow exception there and don’t just assume it’s a blanket exception,” she says.