Recent reports provide little optimism for new college graduates in the job market. They continue a trend since the beginning of the Great Recession. Given the poor prospects for employment, many take unpaid internships in the hopes of gaining both contacts and job related experience that may improve their employment prospects. On the other side of the equation, employers view interns as free labor. The too good to be true rule, however, makes some employers wary about the wisdom of taking advantage of this “free lunch.”
Lawful Unpaid Internships Provide Training without Replacing Otherwise Paid Workers
Both federal and state wage and hour laws require employers to pay the minimum wage, at least, and overtime pay to their workers. The Wage and Hour Division of the United States Department of Labor enforces the federal law. It has recognized a limited exception to the minimum wage and overtime requirements for private sector for profit employers for certain unpaid internships.
The exception allows unpaid internships that meet six criteria:
- the internship offers training similar to that given in an educational environment,
- the internship primarily benefits the intern,
- the intern receives close supervision and displaces no paid workers,
- the employer reaps no immediate advantage from the intern’s work,
- the intern has no right to a job when the internship ends, and
- both the intern and the employer understand the unpaid nature of the internship.
Liability Risks Include Unpaid Wages and Liquated Damages
Despite urban myths to the contrary, employers that offer unpaid internships as a means of securing free labor face liability risks. The primary ones involve the unpaid mimimum and overtime wages that the interns should have received. The federal law also authorizes an employee that sues for unpaid minimum and overtime wages to an award of liquidated damages. They equal a sum eqivalent to the unpaid minimum and overtime wages awarded. In other words, if an intern sued and the jury awarded $5,000 in unpaid wages, it could also add another $5,000 in liquidated damages to that award. Both the federal and state laws also permit an award of attorneys’ fees to prevailing employees.
Unpaid Internships Offer More Risks Than Rewards
For most private sector for profit employers, the risks of unpaid internships outweight the rewards of free labor. In fact, to meet the Department of Labor’s criteria for a lawful unpaid internship, they would rarely and only incidentally get any direct benefit from the intern’s work. Sometimes, at least, the too good to be true rule leads employers to the same conclusion as an analysis of applicable labor laws.