In the current economic recession, many employers are considering whether to supplement their workforces with unpaid interns. Companies seeking to reduce costs at every turn often are tempted by unemployed job seekers who are willing to work without pay to enhance their resumes, gain skill sets, or get a foot in the door of a prospective employer. Though unpaid interns may appear to be a viable solution for employers in troubling economic times, the use of unpaid interns raises unique issues under the Fair Labor Standards Act (“FLSA”).
When determining whether interns should be paid, the answer turns on whether the person is covered by the minimum wage and overtime provisions of the FLSA. The FLSA has extremely broad coverage. It covers “any individual employed by an employer.” The verb “employ” is defined expansively to mean “to suffer or permit to work.” Though coverage under the FLSA is expansive, the U.S. Supreme Court and the U.S. Department of Labor (“DOL”) have determined that, in limited circumstances, certain persons may work as “trainees” and not be covered as “employees” under the FLSA.
In Walling v. Portland Terminal Co., the U.S. Supreme Court articulated six factors to be considered in determining whether an individual is a “trainee” (not entitled to compensation) as opposed to an “employee” (entitled to minimum wage and overtime pay under the FLSA). These six factors, known as the Walling factors, are as follows:
(1) The training, even though it includes the actual operation of the facilities of the employer, is similar to that which would be given in a vocational school.
(2) The training is for the benefit of the trainees or students.
(3) The trainees or students do not displace regular employees, but work under their close supervision.
(4) The employer that provides the training derives no immediate advantage from the activities of the trainees or students; on occasion operations may actually be impeded.
(5) The trainees or students are not necessarily entitled to a job at the conclusion of the training period.
(6) The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.
The DOL repeatedly has taken the position that all six factors must be met for an individual to be a “trainee.” However, at least one federal court has held that a “totality of the circumstances” test should apply and that a person may qualify as a trainee even though all six factors have not been satisfied.
Employers should proceed with caution when utilizing unpaid interns. When doing so, employers should establish bona fide training programs that comport with the Walling factors. Otherwise, when employers use unpaid interns to displace regular employees or to supplement their workforces by performing productive work that provides an immediate advantage to the employer, such unpaid interns likely will be considered employees entitled to minimum wage and overtime pay under the FLSA.
See, e.g., United States v. Rosenwasser, 323 U.S. 360, 363 n.3, 4 WH Cases 935, 936 (1945) (recognizing that, with respect to the term “employee,” the FLSA has been given “the broadest definition that has ever been included in any one act”); Donovan v. DialAmerica Mktg., 757 F.2d 1376, 1384, 27 WH Cases 113 (3d. Cir.), cert. denied sub nom. DialAmerica Mktg. v. Brock, 474 U.S. 919, 27 WH Cases 640 (1985) (FLSA definition of employee broadest among labor statutes).
29 U.S.C. § 203(e)(1).
29 U.S.C. § 203(g).
330 U.S. 148, 6 WH Cases 611 (1947).
U.S. Dep’t Of Labor, Wage And Hour Div., Field Operations Handbook § 10b11.
See id.; FLSA 2006-12, 2006 WL 109459 (DOL Opinion Letter, Apr. 6, 2006); FLSA 2004-5NA, 2004 WL 5303033 (Non-Administrator DOL Opinion Letter, May 17, 2004).
Reich v. Parker Fire Protection Dist., 992 F.2d 1023, 1 WH Cases2d 748 (10th Cir. 1993) (fire department trainees not employees even though there was an expectation of permanent employment at end of training period).