U.S. markets open in 25 minutes
  • S&P Futures

    -50.00 (-1.14%)
  • Dow Futures

    -287.00 (-0.84%)
  • Nasdaq Futures

    -210.50 (-1.46%)
  • Russell 2000 Futures

    -26.30 (-1.32%)
  • Crude Oil

    -1.38 (-1.62%)
  • Gold

    +3.70 (+0.20%)
  • Silver

    -0.49 (-2.04%)

    -0.0055 (-0.49%)
  • 10-Yr Bond

    -0.0190 (-1.09%)
  • Vix

    +6.80 (+26.57%)

    -0.0073 (-0.54%)

    +0.0430 (+0.04%)

    -2,612.25 (-7.26%)
  • CMC Crypto 200

    +514.77 (+212.12%)
  • FTSE 100

    -118.77 (-1.58%)
  • Nikkei 225

    +66.11 (+0.24%)

Unpaid Internships: Legal or Not?

By Zac Bissonnette

About 30% of college students will work at least one unpaid internship, according to the National Association of Colleges and Employers (NACE), and that raises interesting questions about exploitation and opportunity. Unpaid internships might provide experience, networking opportunities, and resume benefits—but those advantages are generally available only to students from affluent enough backgrounds to forgo finding a paid summer job.

Then there’s this: According to NACE, paid interns are about twice as likely as unpaid interns to see their positions turn into full-time jobs, and when they do they come with higher salaries: $51,930 for paid interns compared with $35,751 for unpaid interns. Oddly, those with no internship experience earned more ($37,087) than those with unpaid internships, so if you skipped out on that publishing internship to wait tables at Olive Garden, you may be smarter than your professors are giving you credit for.

But is it legal?

Numbers like that, and the sheer indignity of working for a profit-seeking employer for no pay, have some unpaid interns lashing out in court. A class action lawsuit is currently underway against Fox Searchlight for employing unpaid interns, and a similar suit was recently settled with Charlie Rose Inc. However, in May, a judge threw out a related class action suit that had been brought against the Hearst Corporation, saying that due to procedural rules the former employees would have to bring their cases against Hearst to court individually.

The basis for the litigation? Based on Department of Labor guidelines, virtually all unpaid internships at for-profit businesses are, at best, legally problematic. According to the Labor Department's Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act, there are six criteria that “must be applied” in determining whether an employment arrangement exists under the FSLA. All six criteria must be met in order for the position to be a legal unpaid internship, but two in particular seem to present the thorniest problems for employers:

  • “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”

  • “The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded”

That fact sheet adds: “If the employer would have hired additional employees or required existing staff to work additional hours had the interns not performed the work, then the interns will be viewed as employees and entitled to compensation under the FLSA.”

Language like that, coupled with circling class-action lawyers, has employers nervous, and colleges have taken notice. Kevin Carey of the New America Foundation said that a group of college leaders had written to the Labor Department to criticize the stringent guidelines, arguing for deregulation and assuring the Department that the schools themselves take “great pains to ensure that students are placed in secure and productive environments that further their education.”

Attorney Justin M. Swartz, a partner at Outten & Golden LLP, the firm behind the class action suits against Hearst, Fox Searchlight, and Charlie Rose, doesn’t mince words.

“Virtually all of the unpaid internships I've ever heard about are illegal,” he says. He cites the Labor Department’s limited resources as the reason for the lack of significant regulatory action against employers who use interns in ways that violate the law.

Catherine Ruckelshaus, legal co-director at the National Employment Law Project, echoes that. “If it's a private sector employer, they're pretty much all illegal,” she says of unpaid internships. “Labor and employment laws require someone to file a complaint, so it's not enforced. The interns don't want to be blacklisted; they want the experience, so they're not going to complain.”

Putting employers at risk

A spokesperson for the Department of Labor provided the following statement in response to a request for information:

Whether interns must be paid the minimum wage or overtime compensation is always a fact dependent determination. In general, the more a for-profit employer structures an unpaid internship program around a classroom or academic experience as opposed to the employer’s actual operations, the more likely the internship will be viewed as an extension of the individual’s educational experience (this often occurs where a college or university exercises oversight over the internship program and provides educational credit).

But in court cases, some former unpaid interns have maintained that whether they received college credit for their work is not relevant to whether the employer received “immediate advantage from the activities of the intern”— and the Labor Department’s official guidelines seem to support that position. A college’s offering of credit based on an internship performed at a company does not absolve the employer of its responsibilities under the Fair Labor Standards Act.

If the lawsuits succeed—or even if they just create enough fear and expense for employers—unpaid internships could be on the way out and, with that, some say, could go opportunities for students to get valuable work experience. But Ruckelshaus of the National Employment Law Project argues that the decline of unpaid internships would most likely just open the door for more paid entry-level opportunities.

Zac Bissonnette graduated from the University of Massachusetts Amherst in 2011 and is the author of "Debt-Free U," the "best and most troubling book ever about the college admissions process," according to The Washington Post.