Unpaid Internships – Opportunity or Liability?

Editor’s Note: The following post by Los Angeles Partner Mark Terman appeared in the latest issue of the California HR Newsletter.  To view the entire newsletter click here.  To sign-up to receive the California HR Newsletter see the instructions below.

Unpaid Internships – Opportunity or Liability?

By: Mark E. Terman

The Issue: How can employers reduce risks of the sharp increase of class action litigation by unpaid interns and adverse publicity for companies and key executives over failure to pay wages?

The Solution: Employers should evaluate and correct their unpaid internship practices or, alternatively, treat interns as minimum-wage employees who, if properly classified as part-time or a short-term temporary employee, may not be eligible for certain employee benefits.

Analysis: Unpaid internships have long been used by students and newcomers to build a resume, launch a career or simply land a paying job.  Employers can capitalize on this to teach their business and find talent; but, they should not use interns just to cut labor costs.

If the intern is closely supervised and taught a curriculum that can be applied to multiple different employers, is not primarily doing work that regular paid employees do, has no guaranty of becoming employed, and an advance writing specifies that there will be no pay, odds are that intern can lawfully be unpaid in California.  If a school or college will give course credit, the odds further increase.  The overarching theme is that unpaid internships must be educational and predominantly for the benefit of the intern, not the employer.

Non-compliant employers risk expensive class action and regulator’s claims to reclassify interns as employees and to recover unpaid minimum wages, overtime pay, interest, multiple penalties, and attorney’s fees. “Warning bells” include: use of unpaid interns to minimize labor costs or provide extended job interviews; no supervised education and training beyond what the intern might observe; and a predominance of clerical or “go-fer” duties.

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