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Do You Want to “Hire” an “Intern” or an “Employee”?

May 17, 2018

Posted in Employment Law

If so, you may violate the law and owe the person back pay. Do you want to help someone learn more about your industry? If you get an intern for this purpose you’re more in line with what the law requires.

The line between a properly unpaid intern and an illegally unpaid employee can be thin and blurry. Just because you’ve handled interns a certain way in the past doesn’t mean you’re doing things correctly now. Just using the term “intern” and having the person sign a statement they agree they’re not an employee, but an intern may do you little or no good if the person later files a complaint seeking back wages for unpaid work.

The Fair Labor Standards Act (FLSA) is the federal law that addresses wage and hour issues. It’s been used successfully in the past by “interns” seeking pay for work as part of their “internship” that had little or no educational value. You don’t want to be added to the list of lawsuits.

The U.S. Court of Appeals for the Ninth Circuit (which takes cases on appeal from federal courts in four western states, including California) recently issued a decision on the issue of interns and wages. The plaintiffs were cosmetology students who needed to have unpaid internships in order to get state licenses. They sued their schools claiming they were performing work and were entitled to at least the minimum wage for their efforts.

The appeals court decided the plaintiffs weren’t employees so weren’t entitled to pay. The court used the “primary beneficiary” test to decide how the students fit under the FLSA. The test boils down to determining, who’s the primary beneficiary of the relationship?

The court went back to a 1947 U.S. Supreme Court ruling to help it decide the case. It involved men interested in becoming brakemen for a railroad terminal. They had seven or eight days of unpaid work under supervision to hone their skills. Those who did well enough were put on a list of those who might be hired in the future. Some of those trainees later wanted to be paid for their time.

The court stated that sometimes the trainees made mistakes and the terminal suffered. As a result it gained no “immediate advantage” from the trainees’ work. They were seen as the primary beneficiaries of the training because it opened up for them a potential career.

Another federal appeals court, the Second Circuit, in 2016 also used the “primary beneficiary” test. It was broken down into a number of factors to be considered by a judge when deciding an FLSA case.

• The extent the parties understand the work will be unpaid.
• How much the internship provides training similar to that in an educational environment.
• Whether the internship is tied to an educational program through coursework or gaining credits.
• Whether the internship fits into the intern’s academic calendar.
• Whether the internship only lasts as long as the intern is learning.
• Whether the intern’s work displaces that of an employee, or adds to it while providing significant educational benefits to the intern.
• The extent the intern and employer understand the internship will be conducted without an entitlement to a paid job when it concludes.

If you want to offer internships at your business you need to make sure you’re complying with the law. You don’t want as part of that internship the intern learning that you’ve broken the law, owe him or her back wages and how a lawsuit is filed. If you have any questions about internships and wage and hour laws, contact our office so we can talk about your situation, answer your questions and discuss how we can help.