Unpaid Interns: Is the Risk Worth the Reward?
What do MGM, Armani, Fox Entertainment and Tommy Hilfiger USA have in common? They have all made use of unpaid interns and they have all been hit with unpaid intern class action law suits. In fact, many companies in the entertainment and fashion industries make use of interns and are also being sued by them. Given the spate of recent law suits is the risk of having an unpaid internship program worth the reward?
The use of interns has long been a staple of American industry, particularly when times are difficult and jobs not easy to find. Many employers want experience and sometimes the only way young workers can get the necessary training is by participating in an unpaid internship program. To be fair, there are many instances in which the use of unpaid interns may be warranted and beneficial to both employers and interns. Employers can provide unpaid interns with a phenomenal educational experience, while also training them in the ways in which the company does business. Interns can learn how a business operates in the real world.
Recognizing the value of these programs (but also the risk that they are sometimes abused), the U.S. Department of Labor (DOL) issued Fact Sheet #71 – Internship Programs Under the Fair Labor Standards Act. The DOL Fact Sheet describes six criteria these programs must have in order to qualify as unpaid internships. To paraphrase, the internship must be largely educational and for the benefit of the intern. The unpaid intern must not replace any existing employees or provide the employer with any immediate business advantage (in fact, unpaid internships more typically cost employers time and resources in the form of supervisory oversight). The DOL criteria also explicitly states that the internship will not necessarily result in a job (at the end of the program), and that – providing all of the preceding criteria are met – interns are not entitled to wages for the time spent in the internship.
When businesses follow these DOL criteria, all the parties can benefit. Unfortunately, Armani and others in the fashion and entertainment industries have been sued because they have not abided by the clear rules laid out by the DOL. In fact, in recent coverage appearing on the Law360 web site (Armani Added to Parade of Intern Wage Suit Defendants) the reason the law suit was filed was because of “internship programs that allegedly have no educational value and instead were a way for employers to skirt minimum wage requirements.”
Unpaid internship programs have the potential to be a positive experience for both interns and employers. But if employers abuse them they can end up paying millions in fines, settlements, or in resolution of a class action law suit. The image for these businesses can also take a big hit, impacting their brands and bottom lines.
Employers contemplating unpaid internship programs need to ask themselves if the reward justifies the risk. And they need to know what constitutes a legal program, and carefully monitor it to make sure it complies. For these reasons and others it’s always important to work with a human capital management (HCM) company that both knows the labor laws and has solutions that can help keep businesses compliant.
To learn more about employer compliance issues, visit the Ceridian Compliance Center.
Howard Tarnoff is Senior Vice President for Ceridian HCM, responsible for launching and overseeing the Award Winning Customer Success Program “XOXO” and other initiatives. With over 30 years of HCM experience, Howard is a highly sought after thought leader in the industry, especially for his insightful trend analysis. His deep domain expertise across multiple verticals, leadership experience and deep understanding of the HCM industry make him an invaluable asset to Ceridian. Follow him on Twitter @htarnoff.