Interns are a category of people that work for the primary purpose of their own learning or therapeutic benefit.  Many businesses eventually find themselves grappling with the question of how they may have interns.  They may be organic farms, gourmet cafes, and other businesses that attract people that want to lend a hand and learn skills.  They are often displeased with what their lawyer has to tell them about the law on internships, and many find that the laws inflexibly prohibit what they feel would be a wonderful opportunity to teach and work with others.

In the same way that minimum wage laws serve to ensure that workers get paid a reasonable amount of money for their work, internships laws are, you might say, designed to ensure that interns get enough learning from their work.  The primary case setting a standard for internships and training programs is Walling v. Portland Terminal, decided by the Supreme Court in 1947, where the Court recognized that money is not the only thing that may motivate someone to work.  The Court admitted that the Fair Labor Standards Act (FLSA) was:

“obviously not intended to stamp out all persons as employees who, without any express or implied compensation agreement, might work for their own advantage on the premises of another.  Otherwise, all students would be employees of the school or college they attended, and as such entitled to receive minimum wages.” ¹

Note that interns and trainees are not, for employment law definitions and purposes, the same thing as apprentices.  For more information about apprentices, click here.

Who is an Intern?

Using the Walling decision, the Department of Labor has clarified a six-criteria test for determining whether someone is an intern (also referred to as trainee or student) exempt from coverage under the FLSA.  To ensure that employers don’t find sneaky ways around compliance with employment laws, the exemption for interns has been quite narrowly defined:

1)     “The training, even though it includes actual operation of the employer’s facilities, is similar to that which would be given in a vocational school;
2)     The training is for the benefit of the trainees or students;
3)     The trainees or students do not displace regular employees, but work under their close observation;
4)     The employer derives no immediate advantage from the activities of trainees or students, and on occasion the employer’s operations may be actually impeded;
5)     The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and
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.” ²

This definition of intern is narrow enough that most employers that want to hire “interns” will have a difficult time meeting the standards.  We will discuss this more below, after noting a few important things about these six criteria.  First, these six criteria are the Department of Labor’s and some courts’ interpretation of the Walling case, and not every court has been willing to interpret the test in quite the same way.  For example, the Fourth Circuit has applied a much simpler test, which asks whether it is the intern or the employer is the primary beneficiary of the intern’s work. ³  Second, courts that do use the test are divided as to whether the six criteria constitute an “all or nothing” test or a “totality of circumstances” test.”  For example, the Fifth Circuit ⁴ has ruled that every one of the six criteria must be met, while the Tenth Circuit ⁵ looked at the criteria as guidance in assessing the full picture of the internship (in the same way that various factors may be weighed and considered in determination of who is an independent contractor). ⁶  The Sixth Circuit has similarly affirmed a decision that held that “the entire fabric of plaintiffs’ relationship to the companies must be considered.” ⁷

Each state may adopt its own more restrictive test for the determination of who is an intern, so it’s important to check state laws to see if they match or go beyond these six criteria.  For example, California used to apply an 11-criteria test to the determination of who is an intern, ⁸ until the Department of Labor Standards Enforcement realized that [oops!] many of the criteria seemed to have no basis in statute or case law, and returned to the six-criteria test.  In sum, you may have more or less wiggle room with internship tests, depending on which state and which federal district you are in.

Note also that it’s not always necessary to adhere to the six-part test in the case of “interns” in nonprofits.  Such “interns” are also likely to be exempt from coverage under FLSA due to the fact that they motivated to volunteer for the nonprofit to serve humanitarian or charitable purposes.  Things get sticky primarily in cases of interns working for for-profit businesses and for commercial enterprises of nonprofits.

The Importance of Being Unhelpful

Most businesses struggle especially with fourth criteria in the internship test, which is the requirement that “the employer derives no immediate advantage from the activities of trainees or students, and on occasion the employer’s operations may be actually impeded.” ⁹  Some businesses do seek interns for the sole purpose of providing an educational experience, but let’s be real: Most employers hope that interns will also be helpful to the enterprise, and the framing of this law makes it very hard to have both.  Conceivably, an intern that works hard and benefits a business could later bring a wage claim and argue that they actually should have been treated and paid as an employee.  Disgruntled interns do often have their law on their side, should they choose to exercise it.  Lawyers’ advice to businesses is often: “Just don’t let the intern be too helpful to the business.”

Some courts have been quite strict in finding an employment relationship any time a business benefits at all from an intern or other worker.  For example, in Souder v. Brennan, a D.C. district court held that “[s]o long as the institution derives any consequential economic benefit, the economic reality test would indicate an employment relationship rather than mere therapeutic exercise.  To hold otherwise would be to make therapy the sole justification for thousands of positions as dishwashers, kitchen helpers, messengers and the like.” ¹⁰  The First Circuit has also clarified that “courts faced with scenarios not clearly anticipated by Congress have looked primarily to whether the employer was benefitted to determine if particular hours are covered under FLSA.” ¹¹

At the same time, other courts have demonstrated greater flexibility around the question of whether a business can benefit from an intern’s work.  As noted above, the Fourth Circuit looks at the question of who is primarily benefiting, and will uphold a finding that someone is an intern even when the business received a benefit.  ¹²  In Williams v. Strickland, the Ninth Circuit looked at a case involving a man that volunteered for a long time for a Salvation Army store, primarily for the purpose of his rehabilitation.  Even though he participated in and benefited a business activity, and even though he may have done work typically done by employees, the court still decided that he wasn’t an employee, arguing that he was a beneficiary of the opportunities Salvation Army offered him for his rehabilitation. ¹³

We’re particularly fond of one quote by a Hawaii district court that examined the question of whether school children are employees when they volunteer in the school cafeteria: “[I]t would be absurd for this Court to rule that any educational activity would be placed within the requirements of the FLSA simply because there may be an economic benefit to the institution involved.  This would throw the baby out with the bath water.” ¹⁴  Throwing the baby out with the bath water is, essentially, what employment laws do when they prevent people from engaging in activities that are beneficial to themselves and our communities.  In the case of internships, it’s arguably important to allow some amount of mutual benefit, so that an intern doesn’t simply become a drain on a business, and so that businesses have incentives to educate people about their work.

How To Have an Intern

Given the limitations on how interns can work in enterprises, here are some recommendations for how to operate an internship program in a way that reduces risk of legal problems:

a)      Create a curriculum to accompany the work: This helps to meet the requirement that the training be “similar to that which would be given in a vocational school.” ¹⁵

b)     Implement a systematic training program whereby interns will be exposed to nearly every aspect of running the business:  If an intern is exposed to multiple aspects of running the business, it means that they will not spend a significant amount of time repeatedly doing one task.  This helps to undermine any argument that the employer is benefiting from the intern’s work, since the intern never has the opportunity to be that helpful on any one task, and the employer is constantly training the intern in a different facet of the business.  Create a checklist of tasks that each intern will engage in during the internship.  In the case of a business with many interns, it’s possible that interns can help to train other interns on each task, since people tend to learn more when they teach others, and since this relieves some burden on the business.

c)      Limit the amount of time that interns spend doing rote tasks or work normally done by employees:  In the case of a farm, an intern should not spend a significant amount of time planting, weeding, or harvesting a field, but may do this work on a limited basis, for the purpose of developing basic skills.  It is better to engage the intern in projects somewhat separate from the day-to-day work of the farm, such as installing a new demonstration project or building a rain water catchment system. This helps to prevent any argument that the intern is displacing an employee.

d)     Create an affiliation with an educational institution or nonprofit:  If a business serves as an educational laboratory for school or university students, this helps to create a clearer educational purpose to the work an intern does with the enterprise.

Rules about Paying Stipends to Interns

Although interns must not be entitled to wages (under factor six of the test for unpaid internships), it is possible to pay a stipend to interns if the stipend is set with regard to expenses related to the interns’ involvement in the program and according to other rules under federal and state employment laws. The U.S. Department of Labor states that “the payment of a stipend to the interns does not create an employment relationship under the FLSA as long as it does not exceed the reasonable approximation of the expenses incurred by the interns involved in the program. ¹⁶ See this California DLSE Opinion Letter (April 7, 2010) for additional information on how to pay a stipend to an intern without violating rules about intern compensation.

We hope to add more detail and examples here on how to set a stipend for an intern.

 

 

Internship Program Laws

The State of Washington passed legislation in 2009, SB 6349, that created a pilot program to regulate farm internships from June 2010 to December 2011.¹⁷ In 2014, the law was renewed and expanded to cover a larger geographic area until December 2017. The Washington Legislature has recognized that employment laws, including minimum wage and workers compensation requirements, make it very difficult for people to learn about certain industries, like farming, through unpaid or low paid internships. The legislation created a special program to allow for and oversee internships on small farms, and to provide a special workers compensation program that eligible farmers can use to cover farm interns. The program was initially piloted with small farms in two counties under the original legislation passed in 2009. Under both the original and renewed program, a farm must have no more than $250,000 in annual income and must receive approval for its educational curriculum to be used for the internship in order to participate.

Our impression of these laws is that they do not change any employment laws, but simply create an oversight program that the Washington Department of Labor and Industry (L&I) feels comfortable with, which allows farmers to relax and know they are unlikely to be cited and fined by L&I. At the same time, the program does not actually prevent the interns from bringing wage claims or other actions under existing employment laws. An intern could still conceivably win a case if they succeed in arguing that the internship did not meet the federal criteria, particularly if that intern does a significant amount of day-to-day farm work. Thus, the Washington law is helpful, but does not remedy the general problem that businesses are not allowed to benefit from the help of interns.

In 2011 L&I released a report describing the results of the pilot farm internship law.¹⁸

The report states:

As of September 6, 2011, six farms have enrolled in the FIP project. Both the farms and interns are reporting high levels of satisfaction with this project. Their desire is to continue providing internships that are “sanctioned” instead of questionably legal. The farms and interns especially value the availability of worker’s compensation for interns available through the FIP project. Farmers have reported that the quantity and quality of the educational component of their internships has increased as a result of participating in the project. All of the enrolled farmers said that they would recommend the program to other farmers. Interns have reported high praise for the educational component of their internships.

The report also mentioned the challenge of conducting outreach to farmers in rural areas about legal issues. The report suggested the following as some likely reasons for the low number of farms participating in the program: paperwork, lack of enforcement of regular employment laws generally, lack of continuity of the program, the short timeframe of the pilot program and lack of trust in the regulatory agency.

Read the full report here: http://www.lni.wa.gov/WorkplaceRights/agriculture/smallfarmintership/SmallFarmInternshipPilotLegReport2011.pdf

Information about complying with the current Farm Internship Program can be found at L&I’s website here.

Other Resources on Internships

• Morrison & Foerster’s Employment Law Commentary on unpaid internships

Footnotes