As summer approaches and employers welcome interns into their offices, employers should evaluate their internship programs to ensure they comply with applicable laws. Employers may be surprised to learn that interns are afforded many of the same rights and entitlements as regular employees. In this Client Alert, we dispel some common myths about internship programs, and offer some suggestions for employers to ensure their internship programs comply with applicable laws.

Unpaid Internships Are the Exception, Not the Rule

All employers are required to comply with state and federal minimum wage and overtime rules. Whether an intern is deemed to be an employee, who must be paid the minimum wage and overtime, or a “trainee” who is exempt from such rules, is determined by the facts and circumstances of the internship. The U.S. Department of Labor (“DOL”) evaluates six factors to determine whether a position in the for-profit private sector is exempt from the Fair Labor Standards Act (“FLSA”) and thus may be unpaid. The six factors that must be met are:

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 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.
   U.S. Dep’t of Labor, Wage and Hour Division, “Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act” (April 2010).

The trainee exclusion is purposefully narrow. Where interns perform work that is of benefit to the business, the internship should be paid. For example, interns who perform work that would normally be performed by a paid employee, such as research and report writing, reviewing and summarizing documents and the like, will not satisfy the trainee exception. Nor will interns who perform tasks such as answering phones, getting coffee or lunch, or making copies. Receiving college credit for the internship can be one factor that is considered, but is not decisive, in determining whether the position falls into the trainee exception. See U.S. Dep’t of Labor, Wage and Hour Division, “Fact Sheet #71.”

The importance of properly classifying and compensating interns has been highlighted by several recent class actions commenced by unpaid interns who allege they were misclassified by their employers. In the past year, unpaid interns who worked at Condé Nast, Warner Music Group, and Madison Square Garden have commenced lawsuits alleging that they were misclassified as non-employees, received minimal or no pay, yet performed work that benefited their employers’ businesses. See, e.g., Ballinger v. Advance Magazine Publishers, Inc. d/b/a Condé Nast Publications, 13 Civ. 4036 (RJS) (S.D.N.Y.); Grant v. Warner Music Group Corp., 13 Civ. 4449 (PGG) (S.D.N.Y.); Fraticelli v. MSG Holdings, L.P., 13 Civ. 6518 (JMF) (S.D.N.Y.).

Interns Can Be Eligible For Employer-Sponsored Benefits

Depending on the employer’s benefits program, interns may be eligible to receive employer-sponsored medical or retirement benefits as any other employee would be – subject to any waiting periods or other qualifications that are built into the applicable plan. While most interns work a limited number of hours for a short duration of time, and thus may fall outside of a benefit plan’s eligibility criteria, employers should review the terms of their plan documents and check with their benefits provider to confirm whether interns could be eligible.

Employers also should note that interns may be eligible to accrue and use paid sick time under New York City’s recent Earned Sick Time Act (“ESTA”). The ESTA requires employers with five or more employees who work more than 80 hours in a calendar year to provide employees up to five days’ of paid sick leave, depending on how many hours the employees work; employers of less than five employees must offer unpaid sick leave.

Interns Are Likely Covered By Discrimination Laws

Paid interns generally will be covered by federal anti-discrimination laws, including Title VII, as well as state anti-discrimination laws. And, as of June 14, 2014, both paid and unpaid interns are afforded the same protections against workplace discrimination and sexual harassment as regular employees under the New York City Human Rights Law (“NYCHRL”). The New York City Council unanimously passed a bill on March 26, 2014 to amend the NYCHRL, partially in response to a recent decision in the Southern District of New York by Judge Castel in Wang v. Phoenix Satellite Television U.S. Inc., 13 Civ. 218 (PKC), 2013 U.S. Dist. LEXIS 143627 (S.D.N.Y. Oct. 3, 2013). In Wang, almost all of an unpaid intern’s claims stemming from alleged sexual harassment were dismissed because the court found that unpaid interns were not covered by the NYCHRL. See id. at *2, 26. The recent amendments to the NYCHRL clarify that both paid and unpaid interns are, in fact, protected. See N.Y.C. ADMIN. CODE § 8-102(28). Employers should also note that New York and New Jersey state legislatures are currently considering similar amendments to their state’s anti-discrimination laws. See S.B. 59514A-2013, 2013-2014 Reg. Sess. (N.Y. 2013) and S.B. 3064, 215th Legis., (N.J. 2013).

Whether or not an intern is paid or unpaid, it is always advisable to ensure that all regular employees and interns (whether paid or unpaid) are aware of and comply with the employer’s anti-discrimination policies.

Structuring an Internship Program

Employers should seek legal advice before establishing an internship program. The following are a few steps that employers may take to ensure their internship programs balance the business and educational needs of the employer and the intern, and comply with applicable laws:

• Because most internships will not qualify as unpaid under the strict standards of applicable law, employers should consider classifying interns as temporary employees. This means paying interns at least the minimum wage, keeping track of hours worked and paying overtime, if applicable.
• Similarly, employers should confirm with their benefits provider and plan documents whether the interns will be eligible for employee sponsored benefits, such as health insurance and 401(k) plans.
• Employers should also keep track of an intern’s hours worked to ensure they comply with the ETSA, as well as to track overtime eligibility.
• If an employer desires to structure an unpaid internship program, it should proceed with caution and ensure that the program satisfies all six DOL factors. This means that the intern should perform different tasks than regular employees, the work should be primarily for the intern’s educational benefit and not the benefit of the business, and the employer should clearly communicate that the intern will not be compensated for his or her work nor entitled to a permanent position when the internship period ends. Employers may wish to work with the interns’ educational institution to structure an internship program that provides primarily educational benefits.
• Employers should maintain an anti-discrimination and harassment policy and share that policy with all employees and all interns – whether paid or unpaid.