Internships can be a true win-win situation: Companies get an opportunity to utilize unpaid labor and find their employees of the future. And interns get to learn the ropes, gain real-world experience, and build up their resumes for the post-graduation job search.
While internships have numerous advantages, employers who hire unpaid interns might face legal battles and class action lawsuits. If you don't follow the rules to make sure an internship is a true learning experience, that intern starts to look a lot like an employee who just isn't getting paid. And that's when the wage and hour problems begin.
California vs. Federal Rules
These days, California and federal rules for unpaid internships are the same. California used to have a longer list of requirements employers must follow to stay out of legal trouble. However, the state's Department of Labor Standards Enforcement abandoned this approach in 2010, when it issued an opinion letter stating that it would abandon its extra criteria and simply follow the federal test.
At the time, some commentators stated that this might make California a more lenient place for internships. However, it can still be challenging for an employer in private industry to develop an unpaid internship program that will meet the federal and state standards.
Legal Requirements for Unpaid Internships
According to the U.S. Department of Labor and the California Department of Labor Standards Enforcement, there are certain standards that employers must follow when taking on unpaid interns. These requirements are intended to ensure that the intern is really receiving a valuable learning experience in exchange for free labor. Unless all of the following criteria are met, the intern is legally an employee, who must be paid the minimum wage, earn overtime, and receive all of the other protections guaranteed by state and federal employment laws:
- Interns cannot displace regular employees.
- Interns are not guaranteed a job at the end of the internship.
- The employer and the intern(s) understand that the interns are not entitled to wages during the internship period.
- Interns must receive training from the company, even if it somewhat impedes on the work of the organization.
- Interns must get hands-on experience with equipment and processes used in the industry.
- Interns' training must primarily benefit them, not the company.
Legal Issues for Employers
While internships provide various benefits to employers and students, unpaid interns are quickly becoming the modern-day equivalent of entry-level employees, and are being taken advantage of financially. Employers who exhibit a failure to fairly compensate employees for their work are at risk of legal repercussions.