I originally posted this on our sister site over at http://www.jslawcenter.com/unpaid-interns-buyers-market-right/. But recently, I saw a very similar question discussed on a forum specifically for brewers and breweries. I thought I’d repost it here in case anyone is dealing with the same issues.

Unpaid Internships – It’s a Buyer’s Market, Right?

Many growing companies and businesses want an intern. Especially if, by intern, you mean “slave labor.” Unfortunately, this isn’t always a good idea. And, in certain situations, can turn to disaster.

The Slippery Slope

The economy is not that great. It’s better than a few years ago, but that THAT much better. So many people are looking for jobs and would be happy to have jobs making much less than they were making 5+ years ago. Sophisticated, educated, and experienced folks are competing for the same jobs as fresh university graduates. The effect is to drive down the price of skilled or semi-skilled labor in the modern office. So, it only stands to reason that some folks would be willing to work for free, just for the experience. Right?

Employment Law Basics

See, here’s the thing: a basic tenet of Employment Law is that people deserve to be paid fairly for their work. Even the most bizarre and erudite Employment Laws have some tangential relation to that idea. So the argument goes, “Well, sure. The [unpaid] intern gets experience as their pay.”

Not Enough

More and more unpaid interns are bringing suit against the companies that they work for to secure reasonable pay for their work. The disparate bargaining positions between the employer and the desirous intern/employee has often been abused. Cases where unpaid interns were worked extended hours without a break, used to replace full-time employees, and otherwise exploited by the business are rampant. The most egregious cases have resulted in significant monetary verdicts in favor of the intern.

What Do We Learn?

What we find out from the Courts is that a general, hand-waving excuse of “experience” in lieu of pay is not enough. Courts are carving out the requirement that, if the intern is not paid, they must get substantive training, advancement opportunities, or other development commensurate with the work performed. Specifically, the Department of Labor uses a six-factor test for analyzing interns at a private, for-profit employer:

1. Internship must be similar to training that the intern would receive in an educational environment;
2. Internship must primarily benefit the intern, not the company;
3. Intern must be closely supervised by existing staff and cannot displace regular employees;
4. Company cannot receive any immediate benefit or advantage from the intern;
5. Intern cannot be entitled, necessarily, to a job at the conclusion of the internship;
6. Both the company and the intern must understand that the intern is not entitled to wages.

Also, with recent court decisions, there’s a potential “split of authorities,” some applying the above test and some applying a less rigid version. The less rigid version can be thought of as the Primary Beneficiary test; meaning that if the company is the primary beneficiary – the intern should be paid, if the intern is the primary beneficiary – the intern need not be paid.

Then we add the complicating factor of internships through educational institutions, where the intern/student receives a grade. This adds another level of analysis and opportunities for trouble – though, if well run and substantive, these programs are generally safe for the business and a good opportunity for all sides.

OK… But, What Does That All Mean?

What that means, is that, if you have an unpaid intern, to avoid running afoul of the Fair Labor Standards Act and other employment laws you need to be sure that you meet certain requirements. I advise clients that unpaid interns must receive:

• Substantive training
• Learning and practice opportunities
• A defined development plan

And that you (i.e. the business) must not:

• Receive any substantial benefit from having the intern “on staff”
• Replace any existing employee with an unpaid intern
• Assign the intern any work not already being done by existing staff (that is, you can’t get more work done with an unpaid intern than you can without them)

The idea here is that the unpaid intern should be seen as a development opportunity for the intern, not for the business. The business should not receive a benefit at the expense of the unpaid intern. The DOL has put together a Fact Sheet on this issue, here, that might be helpful.

Wow. Why Would I Get an Unpaid Intern at All Then?

Exactly. Unpaid interns should be seen as way to give back or contribute to the education or development of the intern, not as a means to get work done for free. I advise clients that, given the requirements and the (typical) limitations of small businesses, you’re better off paying for your intern or administrative staff. Avoid the risk of potential lawsuits or regulatory action by paying your staff what they are worth and don’t take the “buyer’s market” too far.