What Constitutes an Unpaid Intern Agreement?
What is an unpaid intern agreement and what is it for?
An unpaid intern agreement is a contract used to clarify and describe the relationship between a Company taking on an intern, and the intern. The agreement establishes some of the basic terms of the internship, such as how long it will last, what will be involved, and following these details, it also explicitly highlights that the position is unpaid.
Both the intern and the Company may have certain expectations prior to entering into the unpaid intern agreement, which should be addressed in the agreement. For example , it may be that the intern expects that he or she will be offered paid employment after the term of the internship. Therefore, it will be important that the agreement clearly states that the internship is unpaid, and that nothing in the agreement creates or implies an offer of employment at the end of the internship.
For the Company, the written agreement may highlight what is expected of an intern and will give both parties confidence that the intern will not be treated unlawfully in the workplace – for example, by making them do a whole lot of work that the Company should be paying someone to do.
Legal Guidelines for Unpaid Internships
Although the offer of unpaid internships can be a useful tool in combating high labor costs, companies must carefully consider the legal framework governing such arrangements. The general measure for determining whether an intern may be unpaid (which is nearly always preferable for the employer) is set forth in the Fair Labor Standards Act ("FLSA") and its state law equivalents. While this chapter is not intended as a treatise on the FLSA, in essence, to qualify as unpaid, the internship must pass the following "primary beneficiary" test: whether the intern or the employer is the primary beneficiary of the relationship.
The factors courts have applied to this inquiry largely derive from a list first set forth in 2010 in the DOL’s Fact Sheet #71. These factors are as follows: Although these factors can seem overwhelming at first (and employers should approach this analysis cautiously), they can all be addressed as part of, and even as an enumerated element of, the unpaid intern’s agreement. For example, the agreement should confirm that:
An unpaid internship is often an attractive option for an employer that does not yet need an actual worker and can therefore afford to dedicate time to training and supervision. However, a poorly developed compensation policy can leave the employer on the hook for back wages, overtime, liquidated damages, and attorney’s fees.
While this chapter has not been intended to set forth a detailed FLSA analysis, the key takeaways here are that the offer of unpaid internships must be controlled and remain intentional.
Key Components of an Unpaid Intern Agreement
An unpaid internship agreement should include the terms and conditions of the employment (i.e. what the intern will be doing for the company), compensation, in-kind compensation (if any), description of the educational benefits of the internship, hours expected, duration of the internship, as well as a confidentiality clause, particularly if the unpaid intern will be exposed to confidential and proprietary information.
Pros and Cons of Unpaid Internships
Internships have long been a means for students and other individuals to gain experience in their field of interest. While the benefits to interns are apparent, the question must be asked of organizations that use unpaid interns, why do it? Both employers and interns receive benefits from unpaid internships; however, there can be drawbacks as well. The benefits to students and other individuals working as interns are numerous. The list includes experience relevant to their field of interest, networking and personal contacts, and opportunities for paid employment. Freelancers and contract labor may also find internships valuable because the experience is comparable to the services they provide as a contractor or free-lancer. Some organizations engage individuals for internship opportunities in order to assist with projects for which there are limited human-related resources available. Many organizations have higher employee turnover rates, and with that comes the expense of training new employees. Engaging individuals who are paid as interns allows the organization to ease some of the training costs, as there is no payment requirement on either side. However, there are some non-quantifiable drawbacks to unpaid internships for both the employer and the interns. Employers risk both negative public relations from exploitation of interns and decreased diversity if less privileged individuals are not able to afford the time loss from a non-paying internship. These outcomes adversely affect diversity and inclusion efforts. Interns, meanwhile, also face some potential hardships. Interns do lose time they could have spent in a job that potentially paid something, if they have no other source of income. Some programs incorporate classroom instruction components, but organizations generally do not instruct interns, so individuals do not receive further academic credit for the time expended at an unpaid internship. In many cases, the intern must be fully committed to the internship, resulting in a greater potential for financial hardship than would otherwise exist for a paid position.
Common Practices in Creating an Unpaid Intern Agreement
An intern agreement should clearly state that the internship is unpaid and for the mutual benefit of both the intern and the Company. The agreement also should make clear that no wage payments to the intern by the Company are anticipated or expected. An intern agreement is also a useful tool for both the Company and the intern to outline the responsibilities of each party.
The agreement should set forth the intern’s duties in detail, as well as the duration of the internship, including start and end dates. It should also include a provision regarding the intern’s supervisor and work schedule and hours. If the intern is in need of flexibility with respect to these items in light of his or her academic commitments , such flexibility should be included in the agreement.
In addition to the foregoing items, the agreement should make clear that (1) the Company will not be liable for injury to the intern during the internship (e.g., the agreement can include a liability waiver), (2) that the intern has reviewed the Company’s policies and procedures applicable to interns (e.g., anti-harassment policy) and (3) that the intern is responsible for securing any academic credit for his or her internship (e.g., any application process with the intern’s school).
Case Proceedings and Legal Verdicts
Numerous legal cases have impacted the best practices surrounding internships. Bossong v. Bay Area Rapid Transit District Board of Trustees is a California case that involved an unpaid intern who filed suit under the California Labor Code claiming that SFBART had failed to pay her minimum wage and overtime calculation for the work she performed during the 2007-2008 school year. The internship was part of her college course work and was not covered by an employment relationship as defined by the law.
SFBART argued that, since the job was part of the university program, if SFBART was required to pay Bossong for the internship, the Department of Education would be required to pay SFBART for those services, which it refused to do. The Court held that the issue "turns on whether the business reimbursement office of the University would pay" the district. That the University would not, according to SFBART, somehow makes the reimbursement mandatory. If SFBART was forced to absorb the cost and assume the risk of unpaid reimbursements to the university, the Court agreed the district, in reality, would be obligated to pay Bossong.
The California State Supreme Court’s recent ruling in Campusano v. Biordi addressed the issue of "reporting time pay." In this case, an intern was entitled to minimum wage and all working interns were entitled to "reporting time pay." The intern in this case went to an interview at a Rite-Aid store and was hired. She was told to report to the store for training but when she showed up, no staff members were at the store to train her on the register as promised. Instead of reporting back to the store, the intern contacted her supervisor and was instructed that she could leave. The intern then sued Rite Aid for unpaid minimum wages and "reporting time pay." The California Supreme Court found that a 2-3 hour time requirement was necessary. The court ruled that employees should receive pay for the time they were asked to be at work. In this case, she did not return because she did not receive adequate information as to what to do at training, nor was she properly trained. The Court decided that the employer’s expectations of the intern on the reporting time were unclear and that the intern could not be properly trained and that she was entitled to minimum wage and reporting time pay. The takeaway from these lawsuits? Interns are considered hourly employees, not exempt employees of the company and the Fair Labor Standards Act (FLSA) applies to them. If the interns remain unpaid, even if the organization reimburses the University of some costs, these interns are considered employees of the company.
Future Developments in Unpaid Interns
As public discussions around the issue of unpaid internships continue, one anticipates an evolution in legal and policy frameworks, as well as business practices in the coming years. It is likely that new legislation will focus on clearer standards that determine whether someone is truly an intern or should be treated as an employee. As legislators grapple with how best to regulate this space one can anticipate some experimentation in different jurisdictions, with some states moving towards clearer definitions, other possibly moving in the opposite direction. Societal attitudes about unpaid internships are evolving – according to a 2019 survey conducted by GoodHire, 76% of employers say they will not consider hiring unpaid interns, while the 2018 Internships.com Internship & Entry-Level Outlook reports that 71% of employers plan to pay their interns. This suggests , however, that many employers are still using unpaid internships, or otherwise pressuring interns to work unpaid – this at a time when many of the largest companies in the world have been embroiled in lawsuits about unpaid interns. Businesses may also find that the nature of the work requires them to re-think how they intern programs are structured. Whether it is the expectation of increased remote work, an increased focus on meaningful work, or an increased desire on the part of employers to reduce risk, it is likely that employers will examine how they engage with interns to make those relationships more meaningful, useful to both parties, and less risky. Companies may find ways to leverage technology to replace some of the traditional lower-level intern work or find new channels for sourcing interns.