According to a recent article by the New York Times, unpaid internships are proliferating. Given the continuing uncertainty of the economy, this shouldn’t come as a great surprise – it’s hard to beat the allure of free labor. However, employers need to be wary about how they structure any offered internships; otherwise, they could run afoul of federal and state wage and hour laws.

The Wage and Hour Division (WHD) of the Department of Labor (DOL) published a fact sheet in 2010 that outlines the Fair Labor Standards Act’s guidelines for when labor may be exempted from wage and hour laws (Washington’s rules currently mirror the federal rules).  In order for an unpaid internship to comply with federal and state law, it must meet 6 criteria:

1. Interns have to receive similar training to what they might get in school. This means that they shouldn’t be performing routine or regularly recurring work, and the business shouldn’t be dependent on the intern’s work. Even if the intern is benefitting from the experience, if the intern is performing standard operations of the business, the intern may be entitled to compensation.
2. The training must be for the benefit of the trainee.
3. Interns can’t displace regular employees. If, without hiring the intern, the employer would have hired additional employees or required existing staff to work additional hours, the intern would likely be classified as an employee and entitled to compensation. For example, job shadowing, where the intern learns under close supervision, but doesn’t really do any actual work, would be more likely to be considered an educational experience.
4. The internship doesn’t immediately benefit the employer’s business (and may even impede it).
5. Interns aren’t necessarily entitled to a job for participating in the internship. The internship should be for a fixed duration, and internships shouldn’t be used as a trial period prior to employment.
6. Interns must understand that they aren’t entitled to compensation.

The 6-part test, a remnant of a 1947 case regarding exemptions from FLSA for workplace training programs (Walling v. Portland Terminal Co., 330 U.S. 148 (1947)), has yet to be further tested in court. The WHD has provided some guidance via “opinion letters“, but this guidance hasn’t been very definitive.  Just providing school credit doesn’t appear to be sufficient, and the amount of supervision appears to matter. Further, just because the internship is part-time, and therefore doesn’t displace full-time employees, won’t overcome the fact that the intern is performing routine work and thus assuming a role as regular staff.

This lack of clear guidance, however, may be in for a change.  2 private suits have been filed against the film and publishing industries since last September by interns claiming that they should have been paid.  Whether the courts will help to clarify the issue or muddle things further, however, remains to be seen.