There’s no such thing as a ‘free’ employee

Q. Acme Corp., a mid-sized manufacturing company, recently laid off half its marketing staff to cut costs. There is still a lot of work to do to keep the department running, but the company cannot afford the salary and benefits. Acme?s president is thinking of taking on a couple of unpaid marketing interns to pick up the slack.Jane is an experienced marketing professional who was laid off from her job almost a year ago. She has tried everything she can think of to find a new job, and has exhausted all of her options. At this point, she would even consider working for a company for free to keep her skills sharp, make some connections and “get her foot in the door” with a potential employer.Sounds like a match made in heaven, right?

A. Probably not. It is unlikely that Acme Corp. would be able to take Jane on as an unpaid intern and still be in compliance with state and federal minimum wage and overtime pay laws.Although recent news reports suggest that the economy may be bouncing back, unemployment is still high. Job-seekers, many of whom have been out of work for an extended amount of time, are willing to try just about anything to get experience and get an “in” with employers. These factors have led to a dramatic increase in the number of unpaid “interns” working for free at for-profit businesses.These interns are not just high-school and college students putting in a few hours at a business in exchange for experience and course credit. An increasing number of recent college graduates unable to find entry-level jobs, and even laid-off mid-career professionals, are finding themselves in unpaid internships.These internships may seems like a win-win for the employers and the interns, but in many cases they violate state and federal minimum-wage and overtime laws. And while the interns themselves are generally unwilling to blow the whistle for fear of alienating employers and hurting their chances of future employment, state and federal authorities have stepped up their enforcement of wage and hour laws through increased audits and education of employers on the legal requirements of internships.Nancy J. Leppink, acting director of the U.S. Department of Labor?s Wage and Hour Division, recently told The New York Times: “If you?re a for-profit employer or you want to pursue an internship with a for-profit employer, there aren?t going to be many circumstances where you can have an internship and still be in compliance with the law.”That is because the Fair Labor Standards Act includes a very broad definition of the term “employee,” which encompasses many “interns” working at for-profit businesses. Employers must observe minimum wage and overtime laws for all persons fitting the description of “employee,” even if they are called “interns.”In order for a worker at a for-profit business to qualify as an intern, and therefore be exempt from the requirements of the federal law, all of the following criteria must be met:?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.
? The internship experience is for the benefit of the intern.
? The intern does not displace regular employees, but works under close supervision of existing staff.
? The employer derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded.
? The intern is not necessarily entitled to a job at the conclusion of the internship.
? The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.Some critics complain that these factors – developed by the Department of Labor following a 1947 U.S.Supreme Court case involving railroad brakemen who did not receive pay during a training period – are outdated. But unless the guidelines are changed, for-profit businesses must observe them in order to comply with the law. (The requirements are less stringent for non-profit entities.)New Hampshire state law is similar to federal law in the restrictions it places on unpaid internships at for-profit businesses. In fact, state regulations reference Department of Labor rules in the definition of who qualifies as an exempt “volunteer” under New Hampshire?s minimum wage law. State law also prohibits employers and non-exempt employees from agreeing to any arrangement under which the employee will be paid less than minimum wage.Based on the facts presented, it appears that Jane would be displacing regular employees, and Acme would derive an immediate advantage from her efforts. It is unclear that the internship would be similar to training given in an educational environment. And while there is nothing to suggest that Jane would be entitled to a job at the conclusion of the internship, it is clear that is her goal.

Adam Hamel, an associate in the Employment Law Practice Group of McLane, Graf, Raulerson & Middleton, can be reached at 603-628-1189 or adam.hamel@mclane.com.