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Internship Legal Concerns Mount

With court cases and new laws mounting that restrict and redefine the use of unpaid interns, an employment attorney and internship expert offers some food for thought for employers with internship season almost upon them.

Tuesday, June 3, 2014
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As internship season approaches, employers are rethinking their use of interns, particularly those who go unpaid. Such internships have come under scrutiny in court battles throughout the past year, with recent lawsuits focusing on claims that unpaid internships violate wage-and-hour laws.

What's more, new laws in states and other jurisdictions across the country are bringing attention to unpaid interns' civil rights as well as their economic rights. A new law in New York enacted in April, for instance, now allows unpaid interns to sue employers for discrimination.

With such movement underfoot, and with interns about to re-enter the workplace, Managing Editor Kristen B. Frasch engaged in a Q&A with Camille Olson, co-chair of Seyfarth Shaw's complex litigation practice group and an expert in this area, about what employers and their HR executives should be keeping top-of-mind when it comes to offering these opportunities to younger workers.

Olson has regularly appeared before Congress and other agencies as a recognized expert to provide testimony on the business perspective in connection with a number of federal labor and employment laws, including the Fair Labor Standards Act.

As she puts it, "to successfully navigate the current legal landscape, companies that provide opportunities to interns must ensure that their intern programs comply with all applicable federal and state wage-and-hour and other laws. Recall that when interns are properly exempted from FLSA minimum-wage requirements, it is under the trainee exception -- so training, education and benefit to the intern over the employer should be the guiding principles to proper internship programs."

Minimum-wage laws, she adds, "are not the only consideration for employers to ensure compliant internship programs. Best practice continues to be adherence to the Department of Labor regulations and to seek advice" from counsel.

Can you briefly discuss the significance of specific court battles and new laws that have impacted the way businesses approach their use of interns?

The absence of legislative activity has been offset by a burst of filings in the courts. The two most notable decisions were issued in Glatt v. Fox Searchlight Pictures (frequently referred to as "the Black Swan case") and Wang v. Hearst Corp. In Wang, the court ruled against certifying a proposed class of interns, concluding that genuine issues of fact existed as to whether the plaintiffs were employees or interns.

In Glatt, the court landed opposite Wang, ruling that the [unpaid-intern] plaintiffs were employees and additionally certifying a class of office-based interns. The Black Swan decision has probably had the most impact, both in emboldening the plaintiff's bar to bring similar cases and as an object lesson for businesses weighing the inclusion of interns. Businesses would benefit from keeping an eye on the progress of both cases' appeals, as they may produce new guidance about how businesses should design internship programs that comply with applicable laws. At least one large company, Conde Nast, eliminated its internship program after former interns brought wage-and-hour suits against it.

Are you personally seeing changes among your clients in how they're using interns or in their decisions to continue such programs at all?

Employers are definitely conducting more intensive risk assessments of their programs. Some have restructured their programs to align them more closely with the Department of Labor's six guiding principles of a proper 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. Some have opted to eliminate risk by paying their interns minimum wage and some have eliminated their internship programs entirely.

How are you guiding them to respond to these mounting risks?

The best response for an employer depends on its goals, its culture and, of course, on its available resources. In this economy, especially, businesses may find that resources are in short supply, and the additional legal risk may discourage them from initiating or administering internship programs. Businesses may find that, in this economic climate, they can no longer spare the resources to administer internship programs.

If you had to guess, what percentage of employers are still taking on interns without complying with current wage-and-hour laws? What percentage don't even know the DOL's six factors?

It's impossible to say what percent of businesses are in compliance with wage-and-hour laws. The divergence between the Glatt and Wang decisions illustrates that even judges within the same court cannot agree on a single interpretation of the Department of Labor's six-factor test. Where any law is concerned, some percentage of businesses will be noncompliant. That's why it's important for employers to conduct regular audits and have counsel who stay abreast of legislative and judicial developments to help ensure they remain compliant with current law.

Are there any companies you can name that can serve as role models for internship best practices? If so, what are they doing that's particularly noteworthy?

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Publicly available information describes Bain's and BP's internship programs as consistently receiving high ratings, including the program's mentoring and meaningful hands-on experience. It appears that these programs supplement interns' observation and participation in high-level company work with sustained guidance, to maximize interns' educational, professional and personal experience. Generally, the most risk-free internship programs compensate interns.

What steps can and should HR leaders take to turn failing internship programs into successful and enriching ones?

Obviously, if an employer has any doubts about whether its internship program is compliant, it should consult in-house or outside counsel to help bring everything in line. As demonstrated by their long history and continued existence in spite of recent legal complications, internships clearly provide professional and personal experiences valued by students and employers alike.

What does your crystal ball tell you about the future of interning? Will the new rules and regulations eventually render it obsolete? Will anything take its place to give younger workers a chance through the corporate door? University and college unpaid-internship stipends and subsidies perhaps?

Although we're seeing a surge in lawsuits now, internships are too beneficial to go away entirely. The landscape might change; for example, the unpaid internship may diminish or disappear. But enterprising young people will always be looking for -- or creating -- opportunities, and businesses will always be looking for ways to attract and provide training opportunities to talent, while remaining engaged with their communities. It is a future to monitor, certainly, but not one to fear.

Is there a fine line between what you can ask of a paid intern versus an unpaid intern? Do companies often cross that line in the work they give to unpaid interns?

Based on the DOL's six-factor test, an unpaid intern cannot replace a regular employee, and the overall relationship should provide a benefit to the intern as opposed to the business ... . Businesses should be wary of assigning any work to their interns that does not have a significant educational value and that is typically performed by employees. Education should be the first priority of any internship program.

What should employers and their HR leaders be keeping top-of-mind when it comes to ensuring they're administering these programs correctly?

As I've said, businesses should always make a sustained and ongoing effort to determine their compliance with applicable wage-and-hour laws, and stay abreast of developments in [this area]. But they can also protect themselves by making sure supervisors are trained in applicable law so they don't assign interns work that might bring [them] out of compliance ... .

How would you describe the ideal intern experience, bringing the most benefit to both employer and intern?

Overall, an internship program's primary purpose [paid and unpaid] should be [to provide] a beneficial training experience for the intern.

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