Unpaid interns need to meet six criteria that set them apart

Mark Pestronk

Q: In the past year, a few young people have come into our agency and told us that they would like to learn the travel business. They are apparently willing to work for several months without pay as "interns." While it is heartening to see young people so interested in the travel business, I am wondering whether it is legal to have interns who don't get paid. Didn't some entertainment or tech companies run into big trouble for having unpaid interns?

A: In theory, it is possible to have interns, pay them nothing and still not violate the labor laws. In practice, however, it may be difficult to meet all the criteria that set interns apart from employees.

Five years ago, the U.S. Department of Labor issued guidelines stating that if all six of the following criteria applied to the relationship, you do not have to pay an intern:

1. The internship is similar to training that would be given in an educational environment.
2. The internship experience is for the benefit of the intern.
3. The intern does not displace regular employees, but works under close supervision of existing staff.
4. The employer who provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded.
5. The intern is not necessarily entitled to a job at the conclusion of the internship.
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Conversely, you would have to pay the intern if you received any benefit at all from the work of the intern. For example, if the intern spent time answering the telephone or transferring hard copies of profiles into your computer, then all of the intern's work would be have to be compensated, as you would be "deriving immediate advantage from the activities of the intern."

However, in a case decided last month, Glatt vs. Fox Searchlight Pictures, the United States Court of Appeals in New York rejected the Department of Labor's six-factor test, which was merely a guideline based on a 68-year-old Supreme Court case. The appeals court favored a much more nuanced or flexible analysis, under which "the proper question is whether the intern or the employer is the primary beneficiary of the relationship."

The court held that "the primary beneficiary test requires courts to weigh a diverse set of benefits to the intern against an equally diverse set of benefits received by the employer without specifying the relevance of particular facts." In other words, each intern's relationship with each employer is different and has to be viewed on a case-by-case basis to see what party gets the primary benefit.

Employment-law experts have called the Glatt decision a significant victory for companies that want to offer unpaid internships. The new general rule may well be followed by other courts, but it is not yet clear whether the Department of Labor will go along with it.

Of course, you can voluntarily agree to pay interns if you wish. However, if you do pay anything, keep in mind that all their work hours must be compensated at no less than the federal minimum wage or (if higher) your state or local minimum wage.