Business Owners may not be aware that in most circumstances, current law does not allow for private “for profit” companies (referred to as “company” or “companies” throughout this article) to have unpaid internships (as it is only allowed in very limited circumstances). Although companies may be using unpaid interns, this practice could very well be a violation of the Federal Standards Labor Act (FSLA) and the Illinois Wage Claim and Collection Act.
Some factors to consider in determining when an intern should or should not be paid are based on the FSLA, which regulates minimum wage and overtime for US workers (including interns) and then the Department of Labor’s Wage and Hour Division enforces the law.
The only way an unpaid intern can work for a company is if the internship meets certain criteria (specified below). The most difficult criteria for companies to comply with are usually the following two criteria: (i) the training benefits the intern and not the company; and (ii) the company does not receive any immediate advantage from the intern’s activities.
Based on long standing case law (stemming from a 1947 Supreme Court case, Walling v. Portland Terminal, cite below) the following criteria are used in determining if an internship can be unpaid:
- The intern’s work is for the benefit of the intern and not the company (one of the current key factors difficult for a company to meet).
- The company does not benefit from the work the intern is doing, “and on occasion the company’s work/operations may actually be impeded” (see cite below) by such intern work, including the fact that the company does not get any immediate advantage from the intern’s activities (this is the other current key factor that is difficult to meet);
- For a student educational program obtaining credit: (i) the internship is similar to training which would be given in an educational environment; (ii) the internship needs to be tied to the intern’s formal education program by integrated coursework; (iii) the internship provides the intern with receipt of academic credit; and (iv) the internship accommodates the intern’s academic commitments by corresponding to the academic calendar (From, “The Black Swan Ruling”, cite below);
- Both the intern and its employer/company need to clearly understand that the intern work is an unpaid position (no expectation of any compensation and this should be pursuant to a written agreement between the parties);
- The intern doesn’t displace paid employees and rather complements the work of paid employees (while continuing to provide significant educational benefits to the intern);
- The intern is not promised a job at the end of the internship (so it does not look like unpaid on the job training and if the intern meets performance criteria, then the intern can get a paid position with the company when the internship is completed);
- The internship’s duration is limited to the period in which the internship provides the intern with beneficial learning. (See below for sources and cites for above criteria)
Unpaid internships in the government, public sector or not-for-profit companies for charitable organizations are more permissible. In the event that the internship is called a “volunteer” position, this needs to be tied to a bona fide charity in order to meet this standard.
Indicating “obtaining academic credit” as justification for the unpaid internship may not be an acceptable factor for not paying the intern except if the private company closely adheres to the criteria specified by law to ensure compliance (based on the recent “Black Swan” ruling, cite below). In the Black Swan Case, Judge Pauley ruled that “the interns had essentially completed the work of paid employees and derived little educational benefit from the work”, one of the criteria for unpaid internships under federal law. Since Judge Pauley ruled that the plaintiffs were actually employees, they were protected by the minimum wage laws and entitled to payment.
In conclusion, it is difficult for a private “for profit” company to have unpaid interns due to the most current legal decisions and Business Owners should carefully consider all of the criteria to ensure any unpaid intern work is in compliance with all of such laws.
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Bibliography, Citations, and On-Line Sources:
U.S. Supreme Court. Walling v. Portland Terminal Co., 330 U.S. 148 (1947). Walling v. Portland Terminal Co. No. 336. Argued January 17, 1947.
Schumann v. Collier Anesthesia, P.A. (United States Court of Appeals, Eleventh Circuit. September 11, 2015 803 F.3d 1199 2015 WL 5297260 14-13169.