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HR Connection: Even unpaid interns may be your employees



“Back in the day” – this phrase causes my 17-year-old daughter to roll her eyes, assume the “I don’t want to hear this” pose, and begin scrolling through the songs on her iPhone. Anyway, back in the day when I was in college, unpaid internships were plentiful and filled with hours of filing, running to the bank and post office, and other mundane tasks.

As an immediate reward, I received a glowing reference letter, which I proudly included with countless job applications. Looking back, I realize there were a number of rewards: valuable life lessons like the importance of personal and professional responsibility, teamwork, independence, time and task management, interpersonal communication skills and especially humility.

Today, employers should be concerned about more than whether an internship is paid or unpaid. Although nuanced on its face, the question should now be whether the internship creates an employment relationship. In the vast majority of situations, the answer is more than likely to be yes, the intern is an employee.

The Fair Labor Standards Act does not directly address internship programs, but broadly defines an employee as an individual who is “suffered or permitted” to work. Recognizing that some internships, or more specifically interns, should be excluded from that definition, the federal Department of Labor’s Wage-and-Hour Division established a six-part test for unpaid internships … in 1980! That’s right, it’s been around for 35 years.

In 2010, the New York State Department of Labor established an 11-factor test – adopting and strengthening the six federal requirements and adding an additional five factors. If all six of the federal factors are met, an employment relationship does not exist under the FLSA. However, for the same to be true regarding New York minimum wage law, the employer must meet all eleven state factors. The factors established by New York state are:

1. The training (internship), even though it includes actual operation of the employer’s facilities, is similar to training that would be given in an educational environment.

2. The training (internship) is for the benefit of the intern.

3. The intern does not displace regular employees, and works under close supervision.

4. The activities of trainees or students (interns) do not provide an immediate advantage to the employer. On occasion, operations may actually be impeded.

5. The trainees or students (interns) are not necessarily entitled to a job at the conclusion of the training period and are free to take employment elsewhere in the same field.

6. The trainees or students (interns) are notified, in writing, that they will not receive any wages and are not considered employees for minimum wage purposes.

7. Any clinical training is performed under the supervision and direction of people knowledgeable and experienced in the activity.

8. The trainees or students (interns) do not receive employee benefits. (Note: this includes discounted or free goods and services from the employer.)

9. The training is general, and qualifies trainees or students (interns) to work in any similar business.  It is not designed specifically for a job with the employer that offers the program (internship).

10. The screening process for the internship program is not the same as for employment, and does not appear to be for that purpose. The screening only uses criteria relevant for admission to an independent educational program.

11. Advertisements, postings, or solicitations for the program (internship) clearly discuss education or training, rather than employment, although employers may indicate that qualified graduates may be considered for employment.

The mistake even some of the most well informed employers make, after confirming they meet all of the criteria mentioned above, is assuming that no employment relationship exists with the intern. And that can be a very costly mistake.

According to the New York State Workers’ Compensation Board, an intern, paid or unpaid, is generally considered to be an employee and should be covered under that employer’s workers’ compensation insurance policy. Further, Workers’ Compensation Law Judges have ruled that the training received by student interns constitutes compensation, even though the student interns may not be receiving actual “cash payments” for their work.

Employers should also be aware that on July 22, 2014, Gov. Andrew Cuomo signed an amendment to the New York State Human Rights Law that immediately extended a number of workplace protections to paid and unpaid interns. Similar to changes made to the New York City Human Rights Law, the amendment was in response to an October 2013 federal district court decision – Wang v. Phoenix Satellite Television US, Inc., – in which the court ruled that an unpaid intern was not an employee within the statutory meaning of NYSHRL, and therefore was unable to pursue a sexual harassment claim. With this amendment, unpaid interns are now able to take legal action against employers for alleged violations of the NYSHRL.

The NYSHRL now protects paid and unpaid interns against discrimination in hiring, discharge, and terms and conditions of employment. Protected categories include, but are not limited to age; race; color; religion; national origin; gender; sexual orientation; disability; marital or domestic partnership status; military status; citizenship status; and status as a victim of domestic violence, sex offenses or stalking.

The law also prohibits employers from subjecting unpaid interns to any form of unlawful harassment or retaliation. In addition, the amendment expressly protects pregnant interns by prohibiting an employer from compelling an intern to take a leave of absence due to pregnancy, unless the intern is unable to perform the functions of the internship due to the pregnancy.

Employers with internship programs should carefully review each unpaid internship position, applying the narrow state and federal statutory interpretations to ensure compliance with all of the necessary requirements.

Employers should also develop and implement an internship agreement that clearly states the intent and limitations of the internship position. For unpaid internships, the agreement should clearly state that the intern will not receive any wages and is not considered an employee for minimum wage purposes, as well as require that the intern report any violation of the agreement immediately.

As is generally the case when employment laws and regulations are amended, the employee handbook should be updated. Employer policies regarding harassment, discrimination, and retaliation should now specifically include interns. In addition, to ensure all complaints are investigated and addressed consistently, procedures used to investigate employee complaints of discrimination, harassment and retaliation should be updated to include complaints reported by interns. Then, train employees and supervisors involved with the internship program on the updated policies and procedures.

Once all the necessary updates and trainings are completed, employers should remain vigilant. The individual or group of employees responsible for the ongoing success of the internship program should stay current with the laws and regulations that govern paid and unpaid intern relationships. Also, regular contact with the interns, maintaining open lines of communication with everyone involved in the program, and acting quickly and appropriately when a violation of the agreement, or other issues occur, will help ensure the program remains viable.

Frank A. Cania, M.S.Emp.L., SPHR, SHRM-SCP, is president and managing partner of DRIVEN HR LLC, a Fairport-based human resource consulting firm providing HR audits, outsourced HR management, employee handbooks and a variety of other services. Frank concentrates on wage-and-hour, FMLA, ADA, Title VII and Form I-9 compliance, as well as workplace investigations. This article is brought to you by the Rochester affiliate of the National HR Association, a local professional HR organization focused on advancing the career development, planning and leadership of HR professionals.

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