Unpaid internships: avoiding hefty lawsuits

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With the news that Elite Models is likely to have to cough up a $450,000 settlement – plus legal fees – for more than 100 former unpaid interns, it may be time to revisit your company’s internship structure. More and more companies are facing the courts over illegal arrangements, while others like Conde Nast have closed down their internship programs altogether.

The Fair Labor Standards Act six-pronged test for legal unpaid internships
  • Interns must not take the place of any regular employee
  • Interns are not necessarily entitled to a job at the end
  • The employer should not derive any immediate advantages from the internship
  • The internship should be a training program similar to an academic setting
  • The internship should primarily benefit the intern
  • Both employer and intern should understand the intern is not entitled to wages
As the courts close in on offending employers, Intern Bridge vice president Dr Robert Shindell says fewer employers will be able to get away with unpaid internships. He said that applying the FLSA test meant that for-profit companies could not realistically host interns without paying them.

“Technically they can (offer unpaid internships), but it’s impossible for them to meet the criteria of the act, because the third prong says that the company can gain no benefit,” he said. “And that means if the intern does anything, even filing or working on a spreadsheet, that’s a benefit for the company, so the only thing an unpaid intern could do that would meet the criteria is really to sit in the corner and watch.”

If a company is going to make a financial investment in its internship program by paying interns, it’s also important to design a structure so that the company gets the most from its investment. Dr Shindell said many companies simply lack adequate preparation.

“A lot of companies go into an internship and they follow the process of ‘fire, ready, aim’ versus ‘aim, ready, fire’,” he said. “I got a call from a company last May on a Thursday, and the HR director called and said ‘Our interns are starting on Monday; what should we do with them?’”

Dr Shindell advised employers to prepare a thorough work plan for each intern, as well as assigned mentors, supervisors, and structured goals and outcomes for both the individual and the company.

Top objectives of internships for US undergraduates (Universum, 2013)
  • A full-time employment opportunity (51%)
  • Job orientation and training (42%)
  • A good employer reference (29%)
  • Challenging assignments (20%)
  • Flexible working conditions (19%)
  • Competitive compensation (18%)
  • Internal networking opportunities (16%)
  • An assigned mentor (15%)
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