By UpCounsel Employment Attorney Mary Fong

Hiring interns has a big potential upside: eager, energetic workers, a pipeline for potential hires, a way to build your brand, and lower expenses than a full-time employee. However, there are also many risks. Often, the biggest risk that most employers fail to recognize is inadvertently violating employment laws.

Here is a story about a well-intentioned employer that got it wrong. Because the employer did not properly consider the nuances of running an internship program, they faced an unexpected and costly legal battle.

Fox Searchlight Pictures, in the tradition of many other companies, hired Eric Glatt and Alex Footman as unpaid interns to work on the film Black Swan. Five years after Glatt and Footman filed a lawsuit against the company, a settlement was reached. The lawsuit kicked off class-action lawsuits against other high-profile firms such as NBCUniversal and Warner Music.

However, developing your internship program does not have to be this hard or costly.

The biggest mistake companies make is treating the internship program casually. Employers should treat an internship program like any business initiative by planning your goals and evaluating potential risks.

Step 1: Define Yours Goals and Parameters

One of the most common mistakes is not necessarily a legal one. However, it is often correlated with situations where legal action has been taken

This mistake is a failure to clearly and succinctly define the scope and objective of the program. While a poorly defined program is not unlawful, it often forms a brittle foundation which can lead to legal issues.

Here is a common check-list of questions to assess when developing an internship program:

  • Do you want the interns to build a pipeline for future full-time hires?
  • How many hours should the intern work to make it meaningful and productive?
  • Who will manage the intern?
  • How long, in terms of duration, should the internship last?
  • Are you looking for the internship program to be unpaid?

Gaining clarity on what you want to do for the intern and how they will support business can avoid confusion and disappointment later.

A happy, successful intern has little reason to file a complaint. Without a complainant, there is unlikely to be legal action against you and your business.

Step 2: Assessing Risks of an Unpaid Program

Having an unpaid intern sounds great: you get free labor, and the intern gets valuable experience.

The risk is that unpaid internship programs might not meet appropriate standards according to federal, state or local laws. In January 2018, the U.S. Department of Labor (DOL) revised its test for determining when an internship may be unpaid. The focus of the new test is to look at who is the primary beneficiary of the internship. Failure to design the program in compliance with the relevant requirements may result in legal exposure.

According to the latest DOL test, the seven (7) factors for evaluating when an internship can be unpaid are the following:

  1. Whether there is a guarantee of a job at the end of the internship.
  2. Whether both the employer and the intern understand that the internship is not paid.
  3. Whether interns are replacing any regular employees or would-be employees of the company.
  4. The similarity between the educational experience and training received by the intern and that provided in an educational environment.
  5. Whether the intern’s completion of the program results in academic credit for the intern.
  6. The degree of overlap between the internship program and the academic calendar.
  7. How educational the program is for the intern during the duration of the program.

Misclassification of an unpaid intern may result in serious liability for the employer, stemming from the potential violations of:

  • Minimum wage and overtime;
  • Meal and rest breaks;
  • Paystub violations;
  • Unemployment insurance;
  • Social security contributions;
  • Other requirements under federal, state, and local laws.

While an employer may believe that its unpaid internship benefits the intern, legal exposure may still exist without a sound analysis of the relevant factors. One solution to avoid the risk altogether may be to structure an internship as paid, akin to a temporary or seasonal employee.

Step 3 – Properly Documenting the Program

Just because the intern is not a regular employee does not mean the employer should skimp on documentation of the program and its interns.

Documents such as offer letters, compensation, expected schedule, and description of tasks for the duration of the program should be communicated and memorialized. A signed acknowledgment would also be recommended.

These three steps provide an initial framework for developing a compliant internship program. Employers are encouraged to consult counsel to assess its particular situation and risks and assist with the implementation of its program.

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About the author

Mary Fong

Mary Fong

As a trustworthy and responsive attorney, I provide practical and actionable advice to clients. My past experience includes litigating business disputes in court and administrative agencies, serving as product counsel for a software company, and advising judges for the Superior Court of California on common issues that Silicon Valley companies face. As a result, I am able to help fast-growing, particularly tech-focused, businesses proactively address a range of employment legal issues, including hiring, company policies, termination, and privacy at a pragmatic, strategic level.

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