It’s a Trap! Students Receiving Credit Need Not Be Paid?

By Amy Joseph Pedersen and Ryan Kunkel on February 5, 2016Posted in FLSA

As colleges and universities begin new terms, not all students are returning to the classroom.  Some students are headed into the “real world,” to work alongside corporate titans, small-business owners, or moms and pops in their shops, while receiving academic credit—and not wages—for their efforts.  

These students are applying the lessons learned in their prior studies to real-world scenarios to gain valuable experience, build their skills, and make connections to help them succeed upon graduating.  Or at least they should be.  

If they are instead used merely as a source of labor, they must be paid.  But many employers mistakenly assume that because these students are getting school credit, they need not be paid.  That is a trap into which employers reading this blog will not fall.

The Fair Labor Standards Act (“FLSA”) and state laws require employers to pay all employees for work performed.  If students who participate in unpaid internships with private employers do not qualify as “employees,” they need not be paid.  Whether those students qualify as “employees” depends on several factors, but the general rule is that these programs are lawful as long as the student, not the employer, is the primary beneficiary of the internship program.

Unfortunately, there is little agreement between courts and the Department of Labor (“DOL”) about what factors are used to determine whether the students may be unpaid.  The DOL has a six-part test, each of which must be met for the student to be unpaid.  However, two federal appeals courts recently found that test to be too rigid and instead use a non-exhaustive list of factors to determine the unpaid internship program’s validity under the FLSA.  Moreover, state departments of labor may have their own tests.

So what are employers to do?  To maximize the likelihood a court or the DOL would find the internship program lawful, employers should ensure their relationship with student interns meets all or most of the following:

1.    There is no expectation (express or implied) of compensation. To establish this, employers and students could sign an internship agreement that includes a statement like the following:  “Company and Student understand and agree that Student is not an employee and will not be compensated during this internship.”

2. The intern and the employer understand that the intern is not entitled to a paid job at the conclusion of the internship. This should again be reflected in an internship agreement with a statement like this:  “Student understands that this internship is intended to provide the Student with a learning experience.  It is not a ‘try out’ for a paid position.  Even if Student proves to be quite successful, Student understands and agrees that Student is not entitled to and has no expectation of receiving a paid position at the conclusion of the internship.”

3.    The internship program provides training that is similar to that which would be given in an educational environment. Employers should ensure the student is applying lessons learned from the academic environment to develop skills relevant to the area of study.  Small doses of non-educational work, like cleaning or running errands (which professionals do as well), are acceptable if kept to a minimum.

4.    The intern does not displace the work of paid employees. Employers should not use interns as an excuse to cut back on paid staff or avoid hiring new staff.

5.    The internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit. Receiving academic credit helps satisfy this factor.  But many internship programs go further and, for example, require students to complete weekly assignments or progress and improvement reports or provide a report to their school at the conclusion of the internship.

6.    The internship program is primarily for the benefit of the intern, not the employer. In fact, the student may be a hindrance to the employer.  The employer should train and closely supervise the student, as well as review and discuss with the student the strengths and weaknesses of the student’s work.

If the internship program satisfies all or most of the above, a court will likely find it to be lawful.  The more factors the program meets, and the more the program benefits the student’s education rather than the employer, the more likely the student may participate in the program for academic credit and not be paid.

Original