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Prepared By: Melissa C. Marsh, Los Angeles Employment Attorney
Written: October 2010

Unpaid Internships sound great, but are typically illegal. Do not be misled, almost all interns working for a for profit company qualify as employees rather than trainees, and as such are entitled at the very least to the minimum wage and overtime compensation for hours worked in excess of 8 in a day, and in excess of 40 in a work week.

Individuals that provide labor and services to for profit employers are entitled to, at the very least, the payment of the minimum wage except in very rare circumstances. The minimum wage is an obligation of the employer and cannot be waived by any agreement. See, Cal. Labor Code § 1194 and Cal. Civil Code § 3513. As many unpaid internships violate the minimum wage laws, the California Division of Labor Standards and Enforcement (DLSE) and the Department of Labor (DOL) have both: (1) vowed to step up their investigations and enforcement efforts against employers that illegally fail to pay their interns, and (2) issued new guidance on when an internship can be "unpaid."

In April of 2010, the U.S. Department of Labor (DOL) issued a new Fact Sheet discussing the very limited circumstances under which an individual can work for a for profit employer as an “unpaid intern,” and California’s DLSE said it would apply the same rule to California employers. See, DLSE Opinion Letter dated April 7, 2010.

According to the DOL and the DLSE, interns that provide labor and services to for profit employers are entitled to the minimum wage and overtime unless the employer has a qualified training program for "unpaid interns." Essentially, both the DOL and the California DLSE maintain that for an internship to be unpaid, it must be educational and predominantly for the benefit of the intern, and not the employer. According to the new Fact Sheet, for a business to qualify (legally hire “unpaid interns”) the following six (6) criteria must ALL be met:

1. “The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
   
   
2. The internship experience is for the benefit of the intern;
   
   
3. The intern does not displace regular employees, but works under close supervision of existing staff;
   
   
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
   
   
5. The intern is not necessarily entitled to a job at the conclusion of the internship; AND
   
   
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

As the DOL notes in the Fact Sheet, the intern exclusion is "quite narrow." In essence, an internship program will be deemed to exist only if the interns are performing some work as part of an educational, or vocational, program that satisfies ALL six of the above-mentioned criteria. If the employer takes the risk, the employer can face tremendous liabilities. In addition to the minimum wage owed to any unpaid interns, the employer could face liability for overtime wages, missed meal and/or rest periods, unpaid employment-related taxes, attorney’s fees and various penalties under California’s Labor Code (including waiting-time penalties for failing to pay wages on a timely basis). Consequently, for-profit employers who intend on using "unpaid interns" should carefully evaluate their business model to ensure that a bona fide intern relationship exists.

© 2010 Melissa C. Marsh. All Rights Reserved.

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