Excerpted from Virginia Employment Law Letter written by attorneys at the law firm of DiMuroGinsberg, P.C.

Every year, companies take advantage of using interns -- and many of those positions are unpaid. Internships afford students the opportunity to gain practical, real-world experience as well as explore various career paths and develop potential contacts. Employers should be careful, however. There are legal issues surrounding the use of interns. For example, does an unpaid student internship violate the Fair Labor Standards Act (FLSA), a federal wage and hour law? If your company is considering using interns, you need to make sure you don't run afoul of the FLSA.


DOL's six-factor test for interns and trainees

The FLSA doesn't define what an intern is, nor does it provide an exemption from minimum wages or overtime for interns. The FLSA does recognize, however, that not everyone who performs duties for an employer is an "employee" and therefore entitled to compensation in accordance with the wage and hour laws. Generally, the FLSA provides that if a company benefits from the use of interns, they are required to pay them at least minimum wage. If, however, an intern isn't doing anything that directly benefits your company but is merely observing or learning, you might be justified in not paying her.

Whether student interns are considered employees under the FLSA depends on the circumstances surrounding their duties and activities. The U.S. Department of Labor (DOL) uses a six-part test to determine who can legally be considered an intern or "trainee." All of the following criteria must be met, according to the DOL, for someone to be considered a bona fide intern rather than an employee subject to the FLSA:

• The training, even though it includes actual operation of the employer's facilities, is similar to what would be offered in a vocational school.
• The primary benefit of the training is for the intern.
• The trainees don't displace regular employees but work under close observation.
• The employer derives no immediate advantage from the activities of the interns, and on occasion, its operations may actually be impeded.
• The intern is not guaranteed a permanent job at the end of the program.
• The employer and intern understand that the intern isn't entitled to wages for the time spent in the internship.


Who benefits: intern or company?

Although courts will use the DOL's factors to analyze a worker's status, they don't necessarily weigh all the factors equally. In fact, the courts often find that the most important criterion for determining whether someone is subject to the FLSA is the question of who benefits primarily from the internship. Essentially, if the intern benefits primarily from the arrangement, she will legally be considered a volunteer rather than a paid employee. However, if your company is the primary beneficiary of the intern's work experience, the intern will be treated like an employee and must be paid at least the minimum wage.

In one case involving a company's use of trainees, McLaughlin v. Ensley, the Fourth U.S. Circuit Court of Appeals held that the owner of a snack foods distribution business had to pay trainees for route jobs. Before being formally hired for a route job, the trainees were required to participate in what was usually five days of exposure to the tasks they would be expected to perform. The trainees traveled an ordinary route with an experienced route man. They loaded and unloaded the delivery truck, restocked stores with the employer's product, were given instruction on how to drive the trucks, were introduced to retailers, were taught basic snack food vending machine maintenance, and occasionally helped in preparing orders of goods and with financial exchanges. However, the employer didn't pay any form of compensation to the potential route men during their training week.

In determining whether that practice was illegal, the Fourth Circuit explained that the proper inquiry was whether the employer or the trainees principally benefited from the weeklong orientation arrangement. The court found it was evident that the employer received more advantage than the trainees because the trainees were in fact helping the employer distribute snack foods. The skills learned on the job were either so specific to the job or so general to be of practically no transferable usefulness. As a result, the appeals court ruled that the trainees who participated in the orientation program were entitled to receive minimum wages for their work.


Ensuring FLSA compliance

If an employer chooses to offer unpaid internships, it should take care to structure the position in such a way to ensure that the intern is the one who will receive the primary benefit of the work experience. Unpaid internships should focus on exposing the intern to a particular career field and offer a mentoring experience. The focus shouldn't be on production -- interns are not to be used as a free source of labor.

Also, if a business chooses to use unpaid interns, it should document the nature of the relationship. The documentation should explain that both parties intend the relationship to be an unpaid internship and that the arrangement is intended to provide the intern with a practical learning experience. Importantly, the intern's actual duties should comply with the terms set forth in the employer's written documentation.


Bottom line

Having interns can be a great experience not only for the intern but also for your company. Interns can bring a fresh perspective to your business and allow you to assess potential employees. Employees often get their proverbial foot in the door by starting as interns while in school and then becoming full-time employees after graduation. Bear in mind, however, that with the benefits of having interns comes the responsibility of ensuring that your company is in compliance with the wage and hour laws. If your interns perform actual job duties, they should be paid actual wages.


Copyright 2009 M. Lee Smith Publishers LLC. VIRGINIA EMPLOYMENT LAW LETTER .
VIRGINIA EMPLOYMENT LAW LETTER is a monthly publication provided as an educational service only to assist lay persons in recognizing potential problems in their labor and employment matters. It is not meant to be construed as legal advice. Readers in need of legal assistance should retain the services of competent counsel.