By Dr. Susan Brown Foster
Newsweek called it “The Great American Internship Swindle” (Chatzky, 2011). The Daily Journal of Commerce describes it as “Cheap Labor” (Finnemore, 2011). New York Times Magazine dubbed it a “rip-off” (Kaminer, 2012). Unpaid internships have been receiving a great deal of press since the federal government issued Fact Sheet #71 in April, 2010. What most organizations do not realize, the information in this Fact Sheet is not new. No new law was created. The Fair Labor Standards Act (FLSA) was passed in 1938. Its purpose was to establish a minimum standard of living in the later years of the Great Depression and resulted in our minimum and overtime wages.
Fact Sheet #71 (http://www.dol.gov/whd/regs/compliance/whdfs71.htm) explains six criteria for- profit organizations must meet in order to utilize unpaid interns. These six criteria were actually established in a 1947 law case Walling v. Portland Terminal Co. and first appeared in a Department of Labor (DOL) Wage and Hour Manual in 1975 (Foster & Cook, 2007). These six criteria, all of which must be applied, are taken directly from the Fact Sheet and include:
1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which 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 that 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; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
Many organizations believe hiring an intern enrolled for academic credit exempts them from complying with the FLSA. Many announcements for internships with sport organizations, particularly in professional sport, very clearly ask for students enrolled for academic credit. In actuality, nothing in the 200-plus page law discusses academic credit as an exemption. Part of the problem is that “intern” is not defined anywhere in the FLSA. The law does vaguely define employee. Volunteers are exempted from the FLSA if they work for a public agency without coercion for charitable reasons. Many internships are required, so the question remains if any intern would be exempted for falling under the volunteer category. Such was the case in Tony & Susan Alamo Foundation, Inc. v. Secretary of Labor (1985) when volunteers were declared employees. Learners, student learners, and apprentices are awarded exemptions under the law, however, the organization must apply for a DOL Certificate of Exemption and these individuals are still paid at a rate slightly below minimum wage (Foster & Cook, 2007).Trainee was used extensively in the original DOL’s examinations for compliance even though it is not defined in the law. When the 2010 Fact Sheet was released, “trainee” was simply changed to “intern” – the only observable change in the 2010 release. The only other references to interns prior to 2010 were found in 2004 (http://www.dol.gov/whd/opinion/FLSA/2004/2004_10_19_16_FLSA_PreemploymentTraining.pdf) and 2006 (http://www.dol.gov/whd/opinion/FLSA/2006/2006_04_06_12_FLSA.pdf ) DOL Opinion letters posted on their website which were responses to individuals who had written to the DOL (Foster & Cook, 2007).
Fact Sheet #71 states that only for-profit organizations have to comply with FLSA. While the law applies to any company directly engaged in interstate commerce and annual sales in excess of $500,000, court decisions are proof this is not always the case. In addition to the Alamo case listed above where the organization was a non-profit, Reich v. Shiloh True Light Church of Christ (1996) resulted in a decision where minors in a vocational training program were determined to be employees under the FLSA. Additionally, a DOL 1994 opinion letter using the six criteria indicated individuals working for a particular 501 (c) 3 would need to be paid because it did not comply with #4 on the list of required criteria. The law also applies to medical facilities, educational institutions, and government agencies whereby the majority would be considered non-profits. Additionally, a footnote at the bottom of the fact sheet indicates the Wage and Hour Division is reviewing unpaid internships at non-profits.
How about a minor league sport organization that does not have sales reaching the above listed amount? Would the organization be exempt even though their interns generally work 60 or more hours per week when involved in a ten-day home stand? Consider the following.
In making decisions regarding unpaid internships, the courts would most likely apply the tests utilized in other FLSA cases against the six criteria. These tests may include the following listed below.
1). “Totality of the circumstances” where the entire situation involving the intern would be measured. Is the intern advancing the mission, vision, or goals of the organization? Are they displacing an employee who could be performing the same work? How much direct supervision is given the intern on a daily basis?
2). “Economic realities” may be considered if the intern is making money for the organization as many do when selling tickets, participating in sponsorship sales, or passing out pocket schedules to local businesses.
3). “The Bonnette Test” involved a Ninth Circuit affirmed decision whereby the lower court combined #1 and #2 above and examined whether the employer had the power to supervise, hire, fire, and maintain records involving “employment” (Bonnette v. California Health and Welfare Agency, 1983). Certainly, interns are hired and some do not meet the expectations of the internship organization and are released before the end of an internship. Hours worked or an internship application could be considered official records held by an organization.
Though not official tests adopted by the courts, Torrez-Lopez v. May (1997) and Moreau v Air France (2004) used eight and 13 factors respectively to determine employment status. As explained by Foster and Cook (2007), this is further proof the courts are willing to go above and beyond to examine situations involving the FLSA.
Unpaid interns are becoming wise. In 2011, two unpaid interns filed a lawsuit against a film production company. Attorneys are seeking class action status for all interns since 2005 and discovery is supposed to be complete by June, 2012 (Glatt v. Fox Searchlight Pictures, Inc). In 2008, an undergraduate student filed a lawsuit against Hofstra University on behalf of a class similarly situated students for underpayment of hours worked for their athletic department (Summa v. Hofstra, 2010).
Besides the legal implications of this issue, some may argue it makes better management sense to pay an intern at least minimum wage for a variety of reasons. With the economic instability of families, many well-qualified students cannot afford to accept an unpaid internship leaving the pool of candidates to include only those with strong financial backing to work three months or more without pay. By paying interns, thoughts of lawsuits may disappear; it may be more prudent because management would not have to consistently look over their shoulder regarding the duties of interns or who and to what extent they are being supervised. The organization could assign any duty to the intern, thus making the internship a better learning experience. Additionally, penalties for violations of the FLSA can result in jail time and fines. While this author has yet to find a lawsuit involving interns and resulting in this remedy, maybe the courts will eventually make an example of someone in order to curb the problems and lawsuits associated with unpaid interns.
The federal government is increasing the enforcement of the FLSA. In fiscal 2011, the Wage and Hour Division of the DOL collected nearly $225,000 in back wages for employees, more than in any other year (Leppink, 2011). Perhaps it will take a lawsuit against a professional sports organization possessing deep pockets to eliminate violations of the FLSA against interns simply trying to get a start in the sport business industry. Maybe it is time for the sport business industry to set an example by honoring the original intent of the law, treat interns with respect, and provide some form of minimal compensation, thus bypassing the courts altogether.
Dr. Foster is a sports law professor in the Donald R. Tapia School of Business at Saint Leo University. She can be reached at Susan.Foster@saintleo.edu
References
Bonnette v. California Health and Welfare Agency, 704 F. 2d 1465 (C.A. Cal., 1983).
Chatzky J. (2011). The great American internship swindle. Newseek (158), 22, 22.
Finnemore, M. (2011, April 15). Interns: Cheap labor in Portland, but legally risky. Daily Journal of Commerce. Retrieved from http://djcoregon.com/news/2011/04/15/interns-cheap-labor-but- legally-risky/
Foster, S. B. & Cook, K., (2007). Unpaid internships: Are they legal? International Journal of Sport Management(8), 3, 263-279.
Glatt v. Fox Searchlight Pictures, Inc. Case No. 11 Civ. 6784 (SDNY 2012).
Kaminer, A. (2012, March 9). The Internship rip-off. The New York Times. Retrieved from http://www.nytimes.com/2012/03/11/magazine/the-internship-rip-off.html?ref=theethicist
Leppink, N. J. (2011, November 3). Testimony of Nancy J. Leppink, Deputy Wage and Hour Administrator. Wage and Hour Division. U.S. Department of Labor before the subcommittee on Workforce Protections, U.S. House of Representatives. Retrieved from https://www.dol.gov/_sec/media/congress/20111103_leppink.htm.
Moreau v. Air France v United States of America 356 F. 3D 942 (9th Cir. 2004).
Reich v. Shiloh True Light Church of Christ, 85 F. 3d. 1616U. (4th Cir. 1996)
Summa v. Hofstra University, 715 F.Supp.2d 378 (E.D.N.Y. 2010).
Tony & Susan Alamo Foundation v. The Secretary of Labor, 471 U.S. 290 (1985).
Torrez-Lopez v. May, 111 F. 3d 633 (Ninth Circuit, 1997).
