The legal minefield of unpaid internships

Posted by Charles Colman

This post addresses an issue that is hardly breaking news, but is nonetheless timely (enough) because it's the beginning of a new semester, and that means a raft of unpaid fashion-related internships are about to start. (Also, LOF happened to notice an advertisement on another fashion-related blog this very day for Spring 2011 interns. To protect the possibly innocent, the blog shall remain unnamed.)


As the New York Times noted last year, wage and hour violations among employers of unpaid interns are likely "widespread, but . . . it is unusually hard to mount a major enforcement effort because interns are often afraid to file complaints. Many fear they will become known as troublemakers in their chosen field, endangering their chances with a potential future employer."


Of course, competition for internships in fashion, art, and music has always been fierce, and LOF has seen no indication that the Labor Department's newfound interest in the plight of unpaid interns has resulted in any significant reduction in the volume of such internships. Indeed, LOF's utterly unscientific observations suggest that in this economic climate, the opposite has occurred: cash-strapped companies gravitate toward free or low-cost labor, while aspiring job-seekers would often rather work for free than not work at all -- either in the hope of getting a foot in the door or to avoid the dreaded "resume gap."


Perhaps in recognition of this, Mayor Bloomberg's office is hosting a fashion retailer roundtable at the Yale Club this evening to discuss "how to spur shopping and support Seventh Avenue, from Fashion's Night Out to internships at fashion firms." Since it's unclear how the employment of (presumably unpaid or little-paid) interns will "spur shopping," one can only conclude that the proposal to create more internships at fashion firms is a method of "supporting Seventh Avenue," perhaps by reducing overhead. (Anyone who attends the roundtable tonight and would like to share the Mayor's actual reason for pushing fashion-related internships, please drop a line to ccolman (at) lawoffashion (dot) com.)


If you're an aspiring intern, you're probably just hoping to land a position, and are not especially concerned about whether your position complies with federal, state, and local law. If you're hiring interns, on the other hand, now would be a good time to review the Department of Labor's criteria for determining whether a worker is a "trainee" who, unlike an "employee," need not be paid under the federal Fair Labor Standards Act:


1) Is the work similar to the training that would be given in a vocational school or academic institution? (Similar = good.)


2) Is the training for the benefit of the trainees? (For trainee's benefit = good.)


3) Do the trainees displace regular employees, or rather work under their close observation? (Displacement = bad; close observation = good.)


4) Does the training result in no immediate advantage for the employer, and are the employer's operations occasionally impeded by the training? (No benefit, occasional impediments = good.)


5) Is it clear that the trainees are not necessarily entitled to a job at the conclusion of the training program? (No guarantee = good; fixed duration = good.)


6) Do the employers and trainees understand that trainees are not entitled to wages for time spent in training? (Mutual understanding = good.)


Even a cursory review of these criteria illustrates why, as acting Director of the DOL's Wage and Hour Division told the New York Times last year, "[i]f you’re a for-profit employer or you want to pursue an internship with a for-profit employer, there aren't going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law."


After all, 1) a fashion magazine, label, or really any company trying to make a profit by selling goods to consumers is not in the business of instruction; 2) interns are nice to have around because they do things regular employees are thereby relieved of doing -- meaning both potential "displacement" and *gasp* "benefit to the employer"; and 3) employers won't keep interns around for very long if their business is significantly "impeded" by their presence. On the other hand, at least there is usually a mutual understanding of 1) non-payment, and 2) no guarantee of a job at the conclusion of the internship, which is typically of a fixed duration.


The one obvious "easy out" for employers of unpaid interns (since complying with the DOL's criteria is not, LOF suspects, at all "easy") is to fail to meet the "annual dollar volume" test of $500,000 -- the point where the federal minimum wage law kicks in. Be careful how you calculate this figure, though; I wouldn't attempt it without an accountant. And we haven't even begun to discuss state requirements, which will (mercifully) have to be saved for another day.


Remember, people, none of this constitutes legal advice. Consult a good, old-fashioned lawyer to ensure you're in compliance with all applicable labor and employment laws.