Ahhhh… summer. Backyard cook-outs. Days at the pool. And the venerable June-August tradition of giving college students a taste of real work experience without denting your payroll. But wait — various media outlets are reporting that the days of the “unpaid internship” are over.1 Are they? It may be soon to tell. But what can this issue teach us about the nearly 80-year-old federal law governing compensation of virtually all employees in the United States, the Fair Labor Standards Act (FLSA2)? The FLSA was enacted in 1938 as part of the package of Depression-era laws designed to protect workers from oppressive employment conditions. It established a minimum national wage, restricted child labor, and required overtime pay for work in excess of 40 hours in a single workweek3. The general rule of the FLSA is that an employee must be compensated for all time worked. There are, however, numerous exceptions to this rule. For example, employees who are paid on a salary basis of at least $455/week and have managerial, professional or other responsibilities requiring “judgment and discretion with respect to matters of significance” may be exempt from overtime. Employees in certain industries may also be exempt from overtime.4 Interstate commercial truck drivers, for example, are exempt from overtime and are instead subject to hours-of-service regulations enforced by the U.S. Department of Transportation. Back to internships. In fact, the term “intern” is not mentioned in the statute. So, applying the general rule, if an intern is an “employee,” then he or she must be paid the federal minimum wage of $7.25/hour.5 But remember, there are numerous exemptions to the FLSA, established by both Congress and the courts. In 1947, the U.S. Supreme Court held that “trainees” of a railroad employer were not “employees” under the FLSA6. Central to the Court’s decision was that the “trainees” 1) received “practical training” from the railroad; 2) did not displace regular workers for the railroad; and 3) provided no immediate advantage to the railroad’s business; and, in fact, at times “impeded” it. So if an intern qualifies as a “trainee,” then he or she is exempt from the minimum wage requirement of the FLSA. Under guidelines established by the U.S. Department of Labor (“DOL”),7 the employer must demonstrate8 that it meets all six of the following criteria to qualify for this exemption:
- 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;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- 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;
- The intern is not necessarily entitled to a job 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.
Few for-profit employers will be able – or willing – to satisfy these stringent criteria; after all, who wants to hire someone who may “impede” the operations of the business? DOL has, however, created a limited exception for certain non-profits and government agencies: “Unpaid internships in the public sector and for non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible.”9 Business non-profits, such as local chambers of commerce, would presumably be treated the same as for-profit businesses under DOL’s guidelines. Whether or not your business hires interns, this example illustrates the following points about the FLSA, which applies to nearly all employers:
- Remember that the rule or presumption of the FLSA is that all employees must be paid at least a minimum wage and receive overtime compensation for all hours worked in excess of 40 in any given work week.
- The FLSA also contains a number of exemptions that may apply to some of your employees.10 But the burden of proof to establish the exemption remains on the employer.
- Finally, the DOL’s focus on internships reflects a broader interest in cracking down on employers who violate other requirements of the FLSA, including recordkeeping obligations. Many states are also following suit.
So when it comes to understanding your obligations under federal and state compensation laws, don’t be a clueless intern! Check this space for future updates on this and other issues affecting employee compensation. — Laurie T. Baulig
- J. McGregor, “Schools crack down on unpaid internships,” Washington Post (May 16, 2014); J. Weissman, , “The Court Ruling That Could End Unpaid Internships for Good,” The Atlantic (June 2013). ↩
- The FLSA, enacted in 1938, covers all “enterprises engaged in interstate commerce.” The courts have interpreted the FLSA to apply to virtually all employers, even to businesses that operate solely in one state, so long as there is some connection to interstate commerce (e.g., interstate telephone calls or internet communications; contracts with out-of-state vendors). ↩
- “Workweek” under the FLSA is defined as a “fixed and regularly recurring” period of seven consecutive 24-hour periods. ↩
- See U.S. Department of Labor, Wage and Hour Division, Fact Sheet #17A (available at www.dol.gov). ↩
- Note that states have the authority under the FLSA to enact laws exceeding the federal minimum wage. While Pennsylvania’s is also $7.25/hour, states bordering PA have recently enacted laws increasing their minimum wage requirements (Delaware – $7.75, effective June 1, 2014; $8.25 by June 1, 2015; Maryland – $8 by Jan. 1, 2015; $8.75 by July 2016; $9.25 by July 2017, and $10.10 by July 2018; New Jersey – $8.25/hour effective Jan. 1, 2014; New York – $8.00, effective Dec. 31, 2013). ↩
- Walling v. Portland Terminal, 330 U.S. 148 (1947). ↩
- DOL Fact Sheet #71, available at www.dol.gov. ↩
- The burden of proof is always on the employer to demonstrate it qualifies for exemptions from the minimum wage and overtime exemptions under the FLSA. ↩
- U.S. DOL WHD Fact Sheet #71 at p. 2. ↩
- There are a number of so-called “white collar” exemptions to the overtime requirements, for example, that may apply to managers, professionals, and other administrative employees. See DOL WHD Fact Sheet #17A, available at www.dol.gov. ↩
The information contained in this website is provided solely for informational purposes. It should not be construed as legal advice, is not a substitute for legal counsel, and is not intended to create an attorney-client relationship. For legal advice or answers to specific questions, please contact Ms. Baulig.