“Can Academic Credit Replace a Paycheck?” 3 Common Misperceptions About Unpaid Internships

by LaDonna M. Lusher and Christina Isnardi

It’s that time of year again—the time when thousands of aspiring young professionals take a shot at their dreams by working full-time at a summer internship, many of them unpaid. It is the time when students often end up paying to work by investing money in academic credit, commuting costs and office attire for a potentially invaluable professional opportunity. This practice has occurred for years, and is often advised, but are these unpaid internships legal?

Whether for-profit companies are legally obligated to pay their interns depends on whether the interns are considered to be “employees” or “trainees” under the Fair Labor Standards Act.1 The United States Department of Labor (“USDOL”) has set forth six criteria to guide employers on circumstances that may justify an unpaid internship:

  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; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.2

With these guidelines in mind, here are three common misperceptions about unpaid internships.

MISPERCEPTION #1: If an intern receives academic credit for the internship, the employer does not have to pay the intern

FACT: Receiving academic credit does not automatically exempt interns from receiving payment. Under the USDOL guidelines, an unpaid internship must offer training that is similar to a classroom setting. A student in class often observes, listens, and takes notes. Similarly, an unpaid intern receiving academic credit should be offered the opportunity to observe, listen, and take notes in a somewhat structured educational setting within the workplace. If the unpaid intern does work to benefit his employer (i.e., compiling PowerPoint presentations, analyzing reports, running errands), the intern is doing the work of an employee and should probably receive payment. This is also true if an intern is primarily performing work along with learning.

MISPERCEPTION#2: If the intern receives a stipend, the employer does not have to pay the intern a minimum hourly wage.

FACT: Some unpaid internships offer modest stipends to compensate interns for their travel expenses or meals. Usually these stipends take the form of a flat dollar amount paid per day or per week. While employers may consider stipends to be a form of compensation for the intern, the employer must still pay the intern a minimum hourly wage if the intern is performing work that benefits the employer.

MISPERCEPTION #3: If an intern contractually agrees to an unpaid position, the employer does not have to pay the intern.

FACT:  Although working unpaid can be acceptable in the public sector, working unpaid in the private sector is subject to different criteria. According to the Fair Labor Standards Act, “employees may not volunteer services to for-profit private sector employers.”3 Therefore, if an intern at a for-profit company is performing work that benefits the employer (such as filing papers, conducting research, or managing projects), any contract or verbal agreement to not pay the intern is invalid and unenforceable, because the intern is likely an employee and should be paid. The fact that the intern agreed to work for free does not matter because the intern is performing compensable work that benefits the employer.  (See guideline #4 in the USDOL six factor test.)

The bottom line is this: if an intern at a for-profit company is doing work that benefits  his or her employer—from coffee-fetching to project management—it is likely that the intern should be paid.  Interns and employers who are participating in internship programs this summer should keep these guidelines in mind as they work collaboratively towards helping interns achieve their dreams, and realize that the work interns perform is likely compensable.

1. See 29 U.S.C. § 203(g).
2. See USDOL Fact Sheet #71:  Internship Programs Under the Fair Labor Standards Act (2010).
3. See 29 U.S.C. § 203.

Former Intern Files Suit Against Clear Channel

Link to Newsweek Article by Zach Schonfeld

A former intern for Clear Channel Communications has filed a suit against the massive radio broadcasting company in federal court, alleging that she performed the job of a paid employee in her unpaid internship and should have been compensated as such.

The plaintiff, Liane Arias, worked for Clear Channel’s promotions and marketing department from August through December 2011, during which time her tasks included assembling current events reports and going to giveaways and other events to promote Clear Channel stations.

Now she argues that she—and any other ex-interns included in the class-action lawsuit—is owed back wages under the Fair Labor Standards Act, which sets the terms under which an educational internship can be unpaid.

Court filings obtained by Newsweek claim that Clear Channel’s conduct “has been intentional, willful and in bad faith, and has caused significant damages to Plaintiff and members of the putative class.”

Arias is represented by Leeds Brown Law and Virginia & Ambinder, a Manhattan law firm that has brought similar suits against Warner Music, Sirius, Madison Square Garden, Viacom and other companies. Last week it also filed cases against Atlas Media, Coach Inc., UBS Financial Services and several other companies.

LaDonna Lusher, a senior associate at Virginia & Ambinder, said the suit is similar to others the firm has been involved with recently.

“We’re representing them because they did the work of paid employees and were unpaid,” Lusher told Newsweek. “They didn’t get any sort of wage or stipend as far as we know.”

These lawsuits all come in the wake of a federal judge’s ruling in 2013 that two unpaid interns on the set of the film Black Swan performed the work of paid employees and so should be subject to minimum wage laws. That decision marked “the first major ruling on the illegality of unpaid internships in recent years,” ProPublica reported at the time.

Clear Channel did not respond to a request for comment.

Paid Internships Benefits Interns and Employers

Link to USNews Article By Lloyd Ambinder and LaDonna M. Lusher

Even before the onset of the 2008 recession, college students and recent grads eagerly, if not desperately, sought out unpaid internships hoping to gain the necessary experience to land a paid job. Unfortunately, rather than provide a structured educational environment for interns, many, if not most, employers treat interns like entry level employees without providing them any compensation. In the end, rather than acquiring critical experience helpful to starting their career, most often these unpaid interns end up doing menial work like cleaning the office refrigerator and running personal errands for their supervisors. All the while their colleges and universities continue to charge thousands of dollars in tuition for academic credit, while providing little or no oversight of the interns’ activities.

While it is not per se illegal for employers to provide unpaid internship programs, perhaps it is time to make such programs unlawful. Many unpaid internship programs do not come close to satisfying the U.S. Department of Labor’s six-factor compliance test that would render them legitimate. Complying with the test is likely to prove burdensome and inefficient for most employers, particularly since a basic tenet prohibits interns from performing work that would benefit the employer or would serve to displace another compensated employee.

A common sense balance would be to compensate interns in a work environment that provides on-the-job training, thereby benefitting the employer and the intern. Employers would be free to utilize interns as they see fit, and take advantage of their talents by having them perform substantive work instead of menial tasks. Employers could further assess the interns work performance and potential for full-time employment without being subject to oversight by the DOL.

Companies such as Viacom, Sony, Madison Square Garden, Donna Karan and Warner Music Group, all of whom are currently facing lawsuits brought by unpaid interns, could have avoided the expense of litigation and eliminated exposure to liability by simply paying their interns at least minimum wage (currently $7.25 per hour under federal law). Those employers, some of whom allegedly required their unpaid interns to perform such tasks as getting coffee, making copies and picking up supervisors’ prescriptions, could have compensated their interns and directly benefited from the work and skill set the interns offered.

The interns would also benefit from mandatory paid internships because they would receive an actual wage for any variety of tasks they are required to perform. Studies show that, while nearly half of all graduating college students have performed some kind of internship, those fortunate enough to land a paid internship are more likely to gain a full-time job offer or higher starting salary than those who complete an unpaid internship. And those who perform an unpaid internship do not fare any better in finding paid employment than individuals who do not participate in any internship program at all. Offering at least minimum wage to these highly motivated and educated individuals would provide further incentive for them to work even harder to gain full-time employment.

The economy also benefits from paid internships, which generate millions of dollars in taxes and revenue to state and federal governments by requiring employers to pay minimum wages, overtime, payroll taxes, unemployment insurance and workers’ compensation. Paid internships also increase the number of paid entry-level employment positions, resulting in a decrease in the unemployment rate. Interns who are compensated also face a lesser financial burden than those who are forced to accept an unpaid internship and simultaneously work a paid position, or borrow money, simply to make ends meet. Mandatory paid internships would also generate competition amongst businesses competing for talented new recruits, and result in higher salaries for entry-level employees.

Finally, requiring employers to pay interns a minimum wage promotes the underlying remedial purposes of the Fair Labor Standards Act, which was enacted by Congress to protect workers from detrimental labor conditions and ensure payment for work performed. Conversely, encouraging employers to offer unpaid internships results in paid employees being replaced by unpaid interns, a reduction in the number of paid employment positions, and the elimination of fundamental workplace rights.

Colleges, Employers Rethink Internship Policies

Court Cases, Legislation Spur Some Companies to Drops Programs; Others Introduce Pay

After a string of high-profile lawsuits, schools have tightened policies for posting summer interns. Conde Nast and other firms have eliminated their internship programs entirely, making for even tougher competition for the positions that remain. Rachel Feintzeig reports on the News Hub.

The rules have changed for summer interns.

Since last year’s class vacated the lowest rungs of the corporate totem pole, a string of high-profile lawsuits by unpaid interns has worked its way through the courts, and legislatures have passed new protections, forcing both schools and employers to rethink their policies.

Some companies are moving toward paid programs. Others, like magazine publisher Condé Nast, are getting rid of internship programs altogether. The pressures could result in better pay and educational experiences for interns who win the coveted openings—but fiercer competition for the spots that remain.

In recent years, internships have become a near-necessity for college students trying to stand out in a brutal job market. And while some positions can provide valuable work experience and a glimpse into corporate life, critics maintain that the stints often amount to little more than unpaid labor.

A survey last year from the National Association of Colleges and Employers suggests unpaid internships don’t help students land full-time jobs. Alums of unpaid internships had full-time job offers at nearly the same rate as those who had no internships at all—about 37%, compared with 62% for those with paid internships.

School officials say they are increasingly looking to protect students from subpar internships. In February, Columbia University stopped giving students special credit on their transcripts for internships. New York University now requires employers to click a button certifying their internship measures up to Department of Labor guidelines before posting it on the school’s careers website.

And Hamilton College, in Clinton, N.Y., won’t post openings for unpaid positions from companies that they know also offer paid internships.

“It’s clear, in the last year, that colleges and universities have begun to individually and collectively come up with a voice on this,” says Mary McLean Evans, assistant vice president and executive director at Hamilton’s career center.

NYU was galvanized, in part, by a petition started last year by third-year student Christina Isnardi. The 20-year old felt “exploited” after spending the summer of 2012 as an unpaid intern on a film produced by Lions Gate Entertainment Corp. She said she sometimes worked 16- or 17-hour days, taking breakfast orders for the cast and crew or watching equipment far from the film set.

A spokesman for Lions Gate declined to comment.

“There are hundreds of students who are sick of this,” Ms. Isnardi said. “We just feel as though our dreams are holding us hostage to this unfair, unethical labor practice.” Her petition gathered more than 1,000 signatures.

State and local governments also have taken up the cause, pushing in recent months for fresh intern protections.

New York Mayor Bill de Blasio signed legislation last week extending the city’s employment discrimination laws to interns, including those who are unpaid. A similar bill won unanimous support in the California State Assembly’s judiciary committee Tuesday. And Oregon last year passed a law extending discrimination benefits to all interns, while Washington, D.C., did so in 2009.

The developments are having mixed effects on employers.

Viacom Inc., facing a lawsuit brought by former MTV interns, made its hundreds of internship positions paid starting last summer, said spokesman Jeremy Zweig. Before, practices had varied, he said.

LeanIn.Org, the nonprofit group founded by Facebook Inc. FB -2.35% Chief Operating Officer Sheryl Sandberg to further women’s career ambitions, came under fire in August after advertising for an unpaid intern; the incident prompted the organization to start a paid program, according to a spokeswoman.

A suit against Condé Nast, which involves former interns at W Magazine and the New Yorker, is currently in settlement talks, according to the plaintiffs’ lawyer. Condé Nast declined to comment on the suit or whether it had any plans to revive its internship program.

Jay Zweig, a Phoenix-based managing partner at Bryan Cave LLP, said he is aware of “dozens” of companies that have walked away from unpaid-internship programs, dropping students entirely rather than creating paid positions. (Arizona’s minimum wage is $7.90 an hour.)

Though there are fewer positions, Mr. Zweig says he thinks the internships that do exist are more substantive. “They’re not just being hired on as unpaid labor doing menial tasks,” he said.

At for-profit companies, 38.2% of interns didn’t get hourly wages, according to a 2012 survey of more than 11,000 students by research group Intern Bridge.

The Fair Labor Standards Act says that unpaid internships shouldn’t be for the direct advantage of the employer, should benefit the intern and be educational, and must not displace regular employees.

One spark for the firestorm over internships was a June ruling by a federal judge that 21st Century Fox Inc.’s Fox Searchlight Pictures violated minimum wage and overtime laws for not paying interns who worked on the film “Black Swan” doing the same tasks as paid employees. Until last year, 21st Century Fox shared a parent company with The Wall Street Journal.

In November, Fox was granted the opportunity to appeal the suit’s class certification and summary judgment, which went in the interns’ favor, to the Second Circuit Court of Appeals, where it is now pending.

A Fox representative declined to comment on the suit, citing the continuing litigation.

That lawsuit has opened the floodgates. Lloyd Ambinder, partner at New York-based Virginia & Ambinder LLP, which is representing unpaid interns in suits against Warner Music Group Corp., Viacom, Madison Square Garden Co. and other employers, says he has spoken to or met with at least 40 to 50 interns in the past month.

His office will have some help handling the caseload: Ms. Isnardi, the NYU student, landed a summer job there. It is a paid position.

Article on The Wall Street Journal By Rachel Feintzeig and Melissa Korn