When Should a Company Hire an Unpaid Intern?

You may have noticed a new trend – a lot of potential employees are offering to work for free. There are many reasons cited for this trend: students are grappling with a noticeable shortage of summer jobs and are turning their attention to building their resume in their chosen field; older workers are being forced back into the workforce as a result of recent economic losses; and, workers displaced by job layoffs over the past few years are looking for opportunities to learn new skill sets and build their resume.

While the prospect of hiring a workforce at no cost is certainly appealing for the obvious economic reasons, it is not without substantial legal risks of violating federal and state wage and hour laws and regulations. Federal and state minimum wage laws obligate employers to pay employees a “minimum” wage. Employees may not enter into an oral or written contract to waive minimum wage laws and voluntarily accept lesser wages. Both the Federal Government and California’s Division of Labor Standards Enforcement recently signaled concern about this issue in recent opinions.

Employers do not have to comply with minimum wage laws for workers who are not “employees”. The two most prevalent types of relationships that fit this category are volunteers and trainees/students. Highly specific rules are used to determine which, if any, of these exemptions apply. Who are these workers?

Volunteers. A “volunteer” is someone involved in certain types of civic, humanitarian and religious related work. A volunteer may not be employed by the institution and provide the same services for which a requested exemption is sought.

Trainees. There is a strict test that applies to this exemption, the key elements of which include the following: the training should be part of an educational curriculum; no benefits may be provided to the trainee; the training must not provide the employer any economic advantage; the training must be for the benefit of the trainee; the trainee must not be guaranteed a job at the conclusion of the training; the trainee must acknowledge that they are not entitled to be paid; the trainee must not displace the position of a regular employees; the trainee must be supervised; and, the training provided must be similar to that provided in a vocational school. Employers are advised to obtain approval in advance from applicable state authorities to qualify for this exemption.

Application of this area of the law is highly nuanced. Employers are advised to carefully review on a case by case basis any request for “intern” status or offer to work for free. What may start out as a “free” situation may lead to an obligation to pay back wages and penalties.

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Lisa Chapman

Lisa is an experienced employment attorney and litigator. In her employment law practice, she helps startup and mid-size companies navigate and comply with Federal and state employment laws and regulations. This includes laws related to wage and hour requirements, sexual harassment and retaliation, worker classification (independent contractor vs. employee status), and overtime laws, among others.
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