Could Your Business Incur Liability Under the FLSA For Using Unpaid Interns?

Students and aspiring professionals looking to earn knowledge and experience in their desired field of work often engage in internships. These programs typically aim to benefit both the interns and the organization providing the internship — the interns receive a chance to improve their skills and obtain a deeper involvement in the career they have chosen, while the businesses find themselves more staffed and enriched by innovative points of view that assist the company progress.

The benefits provided are not without peril. Internships raise an ethical and legal challenge for businesses that have opted to not monetarily compensate their interns. The Fair Labor Standards Act of 1938, 29. U.S.C.A. § 201 et seq., (“FLSA”) states that all employees working at for-profit companies must be paid for their work. Unbeknownst to many, interns may be considered employees under this federal law. This danger, however, will only apply to situations in which the intern is not considered the “primary beneficiary” of the arrangement.

The U.S. Department of Labor has created a primary beneficiary test in the wake of the subjectiveness of this issue. As part of its test, the following seven (7) factors must be considered to determine whether unpaid interns are the primary beneficiaries of a work arrangement:

1. The extent to which the intern and the business clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.

2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.

3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.

4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.

5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.

6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.

7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The Eleventh Circuit Court of Appeals, whose decisions apply to Florida employers, recently opined on these seven (7) factors in McKay v. Miami-Dade Cty., 36 F.4th 1128 (11th Cir. 2022). In McKay, a former intern at Miami-Dade County’s Medical Examiner’s Forensic Imaging Preceptorship Program argued that she was entitled to minimum wage and overtime under the FLSA after her participation in the program ended approximately a month before it was scheduled to end. As part of the program, she received training taking forensic autopsy photographs in the morgue and shadowing other forensic photographers around without any pay and on weekends. The intern argued that after her first four weeks of her internship that she was largely working on her own, without supervision, and that the employer benefited by obtaining free labor when she was not enrolled in a formal educational program. The Eleventh Circuit Court upheld the district court’s dismissal of the case on summary judgment prior to trial on the basis that there was no genuine issue of material fact reflecting that the intern was an “employee.” It found that she gained both valuable practical experience and training throughout the entirety of her participation in the program, despite the program not being tied to a formal educational program. Further, there was no expectation of employment following the internship. In upholding the district court’s dismissal, the Court found that the economic reality of the relationship between Miami-Dade County and the intern was that the intern’s free internship allowed her to develop her forensic photography skills over a short period of time, imparting a significant benefit to her.

Although the former intern lost her case against Miami-Dade County, employers would be wise to consider the risks inherent in most internships. Taking into account that this test is flexible and no single factor is determinative, employers should ensure that work conditions under an unpaid internship primarily benefit the intern to avoid any legal issues. Some practices that can help employers follow the law in this matter include, but are not limited to:

• Ensuring that the internship’s conditions are clear to applicants when promoting the internship;

• Having all parties sign their consent to the arrangements of the internship;

• Assigning low-risk tasks to the intern;

• Providing duties and responsibilities to interns that vary from those of employees;

• Developing an internship program whereby interns are in constant training and constantly learning, such that their work is more in line with their previous or ongoing educational experience;

• Avoiding giving the impression that the internship will lead to a job offer; and

• Providing optimal work conditions.

Structuring an unpaid internship to make interns the primary beneficiaries of the work arrangement will not only help employers steer clear of violations of the FLSA and avoid legal issues in the future — it will also give interns a pleasant experience, making it more likely that they will provide the organization with their best ideas and their full skill set.