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Free Advice on Unpaid Internships

In the wake of a landmark 2013 ruling, it would seem unpaid internships aren’t long for the business world. Yet, such positions aren’t illegal.

August 5, 2014
Related Topics: Miscellaneous Legal Issues, Minimum Wage, Job Design and Analysis, The Latest, Compensation
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interns August 2014

Eric Glatt and Alexander Footman are trend-setters.

After the two former unpaid interns won their wage and hour lawsuit against Fox Searchlight Pictures in June 2013, a wave of similar lawsuits came crashing down on the U.S. legal system. That led many employers to question the legality of their own internship programs.

Thirty-five lawsuits concerning unpaid internships have either been started or settled since 2011, according to Pro Publica Inc., a watchdog group that tracks such lawsuits. There were 23 unpaid internship lawsuits filed in 2013, 19 of which were filed after Glatt and Footman won their case against Fox Searchlight.

On the surface, unpaid internships seem to be a fair deal in which an intern agrees to work for free in exchange for an educational experience in an office setting for college credit, as well as the foundation of a professional network. But, for a variety of reasons, in recent years “internship” has become a synonym for “entry-level job,” as the responsibilities and hours of interns are often indistinguishable from those of paid employees.

According to the National Association of Colleges and Employers, among the internships taken by class of 2013 graduating seniors, 52.2 percent were paid and 47.8 percent were unpaid.

“The majority of companies are offering their interns at least minimum wage,” said Robert Shindell, vice president and chief learning officer for Intern Bridge Inc., an organization dedicated to improving internship programs in the United States. “Most companies are using their internship programs effectively as an entry-level talent acquisition strategy, and they’re doing everything right and trying to do it better. It is the few bad apples of the bunch that are creating the stink around this issue.”

Most of those bad apples tend to be found in the glamour industries — entertainment, media or fashion, for example. And while they do not represent the majority of employers, the organizations that do offer unpaid internships create multiple unfair situations that carry potential negative implications for all workers, businesses and the economy in general. What’s more, advocates for paid internships argue affluent white and Asian males tend to take unpaid internships, which can potentially limit economic opportunities for minorities.

Legal Unpaid Internship

Despite the recent scrutiny of unpaid internships in the courts, such positions are not necessarily illegal. Many nonprofit organizations and public sector agencies offer unpaid internships for college credit. And as long as a private sector company follows the U.S. Labor Department’s Fact Sheet #71, which outlines the six criteria for unpaid internships, those positions are also legal.

The central theme of the Labor Department’s internship guidance is whether the position is for the benefit of the intern, not the company, explained Leslie Selig Byrd, a partner at San Antonio law firm Bracewell & Giuliani. One of the important factors the Labor Department examines is whether interns are receiving academic credit for their work and whether the employer worked closely with the intern’s university to develop the program. However, experts noted some schools, such as Columbia University and New York University, have recently stopped offering academic credit for unpaid internships in support of their students receiving wages for hours worked.

On the surface, unpaid internships seem to be a fair deal in which an intern agrees to work for free in exchange for an educational experience in an office setting for college credit, as well as the foundation of a professional network. But, for a variety of reasons, in recent years “internship” has become a synonym for “entry-level job,” as the responsibilities and hours of interns are often indistinguishable from those of paid employees.

An unpaid intern cannot displace or act as a substitute for another employee, Byrd said. A legal unpaid intern needs to be mentored and supervised in a way that benefits the intern and relates to his or her academic experience. In other words, having an unpaid intern work the mailroom or make photocopies could potentially lead to an employer defending a wage-and-hour lawsuit because such work could be interpreted as benefiting the company and not the intern.

Catherine Ruckelshaus, general counsel and program director at the National Employment Law Project, or NELP, said most unpaid internships do not provide an on-going educational experience for the intern. Ruckelshaus said most violate the Fair Labor Standards Act, which uses a broad definition of “employ” to include work relationships that were not within the traditional common-law definition of an employee. According to the FLSA, to employ somebody means “to suffer or permit” them to work.

Ruckelshaus also said that unpaid internships undermine the FLSA labor and employment standards established for all workers. Companies’ decisions to offer unpaid internships represents a broader trend toward more employer use of more contingent jobs, including requiring employees to sign an independent contractor agreement as a condition of getting a job, and the increased use of volunteers who bid on the right to perform work for a firm, according to a NELP amicus brief submitted to the U.S. Court of Appeals for the 2nd Circuit.

“The problem is employers are getting this bunch of free workers, and that’s not fair to the workers or other competing employers,” Ruckelshaus said.

Confusion Part of the Problem?

While NELP includes unpaid internships in the broader trend of employers purposefully skirting the FLSA, Intern Bridge’s Shindell said there are some employers who unintentionally misclassify their interns because they’re not sure what an internship should consist of despite the Labor Department’s guidance.

“If I have a room full of 15 employers and I ask them to write down the definition of internship, I’m going to get 15 different responses. One of the main problems with unpaid internships, in general, is that every company and school defines their program differently,” Shindell said. “There is no standard definition, no standard operating procedure to go by.”

Shindell and his company have developed 12 components they believe should be the framework for a standard internship. While the 12 components are proprietary information, he said Intern Bridge consultants always encourage their clients to pay interns in keeping with the social contract at the foundation of all employment relationships.

“In the U.S., we have established a social contract, a moral obligation, that if somebody works for us, we pay them,” Shindell said. “Through legislation such as the Fair Labor Standards Act, we’ve developed a social contract that says: ‘If you work you’ll be paid at least a minimum amount of money.’ ”

Contrary to popular belief, unpaid internships provide limited access to full-time employment for students after college. According to a 2013 study published by NACE, 63 percent of paid interns received at least one job offer. In comparison, 37 percent of unpaid interns got an offer, and only 35.2 percent with no internship experience at all received at least one job offer.

In addition to placing unpaid interns at a disadvantage, companies that offer unpaid internships may also be doing themselves a disservice.

According to Shindell’s research, paid interns perform better work for their employers, giving organizations a higher return on their investments. He also found that a paid internship results in a higher retention rate and level of satisfaction for both the intern and the employer.

“If you’re not paying your intern, you’re probably not going to invest a whole lot of time in their development. You’re going to give them menial tasks to do, and that’s it. When you pay them, you’re going to look at them from your company’s perspective as an investment,” Shindell said. “When you have an investment, you devote time and resources to develop it into something of value to you and your organization.”

Unpaid Internships and Economic Inequality

One argument that often gets overlooked in the debate over internships is that “unpaid internships can perpetuate economic inequality,” said Ed Koc, director of strategic and foundation research at NACE.

Koc shared the raw information of NACE’s 2014 internship study, which will be published later this fall. His research found that white and Asian males were more likely to have an internship —– paid or unpaid –— than black and Latino people. Further, his research shows white people (55 percent) and Asian people (60 percent) are more likely to have paid internships than black people (42 percent) and Latino people (43 percent).

His research also shows a lack of paid internships for women. Koc found that while there is no real difference between males and females when it comes to young adults who participate in any kind of internship, there is a distinct disparity between males and females for paid internships. Sixty-three percent of young-adult males interned in 2013 compared with 64 percent for females. However, 67 percent of male interns were paid compared with 47 percent of female interns.

A 2010 study conducted by public policy group Demos found that, excluding travel, a three-month internship in Washington, D.C., conservatively costs about $4,050. When adjusted for inflation in 2014, that number increases to $4,403.19. A 2014 summer intern in Washington being paid minimum wage for 40 hours of work would need to find another job to cover the difference between the intern’s  total summer internship salary of $3,960 (before taxes), or receive financial support from another source.

For most interns, paid and unpaid alike, additional financial support comes from parents who can afford the costs. Parents of white and Asian people are more likely than black or Hispanic people to be able to support their child during an internship, according to internship experts.

Minority workers are more likely to support a family while earning minimum wage, the real value of which has not kept pace with increased consumer prices, according to the Congressional Research Service. Restricted economic mobility and a legacy of systemic employment discrimination have restricted minorities’ access to job opportunities, including the ability to take on unpaid internships at a higher rate than white and Asian populations. As a result, workforce diversity has suffered. 

Shindell said companies that offer unpaid internships tend to attract a limited portion of the talent pool compared with a competitor that offers paid internships, placing themselves at a potential disadvantage while simultaneously diluting the diversity of their workforce and the workforce at large. 

“That’s kind of an unintended outcome of unpaid internships, and it’s one we don’t think about initially,” Shindell said. “The diversity pool is really limited when you offer unpaid internships because many historically unrepresented populations in higher education cannot simply afford to do an unpaid internship, so they don’t. That limits their access to all the benefits one would gain from that.”

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