HOW TO AVOID BEING SUED BY YOUR UNPAID INTERNS

Recently, a federal judge in the Southern District of New York granted conditional certification of a nationwide class of former and current unpaid interns for Warner Music Group. The class of roughly 3000 unpaid interns allege that they were actual employees of the company under the Fair Labor Standards Act, and thus entitled to minimum wages and overtime pay. Warner Music Group is among several companies to have recently been sued over their unpaid internship practices. Other companies being sued include NBC Universal, Conde Nast, Hearst Corporation and Fox Searchlight. 

Although the recent ruling centered on whether conditional certification of the class would be granted and not whether the claims had merit, this case serves as an important reminder of what standards a company should meet in operating an unpaid internship program. The Department of Labor has previously outlined the following six criteria to determine whether an intern is exempt from the Fair Labor Standards Act, thereby allowing the company not to pay the intern. All of the criteria must be met, and include the following:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern dos 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 at the internship.

Prong 4 of this test is difficult to meet, as it seemingly requires the company to not benefit from the intern's work. The question as to how "immediate advantage" should be defined has caused some confusion and a hesitation towards hiring interns at some companies. What this prong likely entails is that interns can act in support roles, or work on pieces of larger projects, but should not create a final product from start to finish that is then marketed to consumers. In the latter scenario, the intern would be providing an immediate advantage through their activities. 

Internships may be appealing to small businesses and startups who operate on tight budgets, but they should be the most careful as lawsuits can quickly derail their path to success. If your business is considering an internship program, or already has a program, make sure that the internship meets the Department of Labor test.