Interns: When and How to Use Them

Interns:  When and How to Use Them

Even though an employer and an “intern” may agree to, or think that they have a valid unpaid intern/trainee relationship in the workplace, if certain factors are not strictly adhered to, an adjudicative body may hold that the intern is in fact, an employee of the company.  If so, the employer will be liable for hefty damages, including but not limited to, unpaid wages, minimum wage violations, unpaid overtime, missed meal and rest break periods, and waiting time penalties.  It is imperative that any employer who is considering an unpaid educational internship program determine whether the applicable criteria have been satisfied and to first seek competent legal advice.  So what are the relevant criteria?

The federal Department of Labor (DOL) articulated six factors in a January 2001 Opinion Letter, which it derived from a U.S. Supreme Court case entitled, Walling v. Portland Terminal Co., 330 U.S. 148 (1947) (Opinion Letter available at 2001 DOLWH LEXIS 10).  Since opinion letters are not mandatory authority, federal appellate courts have differed in applying these factors to cases.  Some courts have refused to use the six factors altogether, and instead applied a “primary beneficiary” test (See McLaughlin v. Ensley, 877 F.2d 1207 (4th Cir. 1989)).  Needless to say, over the past few decades there has not been a clear unified test.

To add to the confusion, these factors have been tweaked in California through a number of DLSE Opinion Letters.  For example, in a November 1998 DLSE Opinion Letter, the six-factor test was increased to an eleven-factor test (available at https://www.dir.ca.gov/dlse/opinions/1998-11-12.pdf).  In a subsequent DLSE Opinion Letter released twelve years later in April 2010, the DLSE stated that because the 5 additional factors were not based on any statute, regulation, or specific case law, that it will utilize the six factors articulated by the DOL in evaluating internship programs (available at https://www.dir.ca.gov/dlse/opinions/2010-04-07.pdf).

As a result, in California there is now a relatively clear set of six criteria that employers must meet in order to avoid liability for failing to treat an intern as an employee.  All six factors must be satisfied in order to avoid liability.  Each factor is further discussed below:

Factor 1.   The training, even though it includes actual operation of the employer’s facilities, is similar to that which is given in a vocational school.

There should be a close nexus between the training or program and the intern’s educational goals.  The intern’s use or actual operation of the employer’s facilities must be directly related to the training, educational, and vocational objectives of the program.  (See DLSE April 2010 Opinion Letter, p. 8).  This factor is more easily met if the program is “a continuation of the learning and development phase with both phases developing individual discipline, basic job skills, and applied knowledge” not typically available in the classroom setting (Id.).  Thus, the intern program should involve more than menial tasks, such as photocopying and Starbuck runs.

Factor 2.   The training is for the benefit of the trainees or students.

Similar to the training in Factor 1 above, the benefit also needs to be closely tied to the trainee or student’s education.  Each employer should ask itself, what are the core components of the educational objectives?  What will the participants get out of this experience?  What will be their primary benefit?  Although not mandatory, one way in which students typically benefit from performing an internship is by receiving college credit.  Another benefit, depending on circumstances, may be an enhancement to the intern’s marketability in the vocational area, due to their experience and the specific work performed at the worksite.  The stronger the nexus is between the benefit received and the trainee or student’s education, the more credible the argument is that this factor has been satisfied.

Factor 3.   The trainees or students do not displace regular employees, but work under their close observation.

In the past, any work that was performed by a trainee or student that could be performed by a regular worker would not satisfy this factor, and thus, the trainee exemption would not apply.  However, DLSE has since relaxed its interpretation.  In further explanation of the non-displacement factor, the DLSE has opined that the “tasks performed must be ‘directly pertinent to his or her education only’ and the activities performed should not be ‘an integral part of the [business’] activities from which the [business] derives a substantial economic benefit.”  (DLSE April 2010 Opinion Letter, p. 10, quoting DLSE May 2000 Opinion Letter.)  DLSE has stated that the overall determination of this factor depends on the totality of the circumstances and is analyzed on a case-by-case basis.

Close observation and supervision of the intern is required.  If an employer lets an intern “do their own thing,” or allows them to perform substantial independent work, the employer is asking for trouble.  If the intern is loosely supervised or unobserved, there is more likely an employment relationship.  Of course, this does not mean that a supervisor must handcuff himself or herself to the intern for the day, but it wouldn’t hurt.  No seriously, do not handcuff yourself to employees, interns, trainees, independent contractors, or most importantly, to politicians.

Factor 4.   The employer that provides the training receives no immediate advantage from the activities of the trainees or students and, on occasion, the employer’s operations may even be impeded.

The key language to this factor is “immediate.”  If the intern is performing the main work of the business, essentially stepping into and replacing a regular worker, the employer may likely gain an immediate advantage.  However, if the trainee is supervised throughout the program, does not assume the duties of regular workers or who does so gradually, and whose responsibilities are slowly increased towards the end of the program, there is likely no immediate advantage to the employer.  In fact, the employer is often impeded under these circumstances, due to the increased economic cost of substantially supervising and training the intern.

Factor 5.   The trainees are not necessarily entitled to a job at the conclusion of the training period.

The fact that trainees or students are not entitled to a job should be in writing and agreed upon by the intern, employer, and if applicable, the educational institution.  There cannot be an automatic entitlement to a job at the conclusion of the program – interns need to understand this.  However, if an intern is occasionally hired after completing the program, it will not necessarily defeat the arrangement.

Factor 6.   The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

This should also be clarified in writing and agreed upon by the intern, employer, and educational institution.  The more objective documented evidence that an employer has showing the understanding amongst the parties regarding their relationship, the better.

Conclusion

If you are currently using interns or are thinking about beginning an internship program, be sure that the relationship meets the above six factors.  It is strongly recommended to seek legal counsel, as the penalties for noncompliance are severe.  If the factors are not met, treat the person as an employee – pay them at least minimum wage for all hours worked; provide applicable overtime pay, meal and rest breaks, and sick leave; and follow all other California wage and hour laws.  Otherwise, you could be in a world of hurt.

James C. Anderson, Esq., Triebsch & Frampton, APC

Disclaimer:  The information provided is just a summary for general information purposes only and is not intended as legal advice (except the “don’t handcuff yourself to employees” part – that is legal advice).  Please review the actual laws, regulations, and cases to obtain all the latest updates, details, and implications and to reach your own conclusions as to what the law means.  Also seek legal and accounting advice as needed.

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