As the summer approaches, many companies look to enlist unpaid interns as a means of evaluating potential future talent. Given the current economic climate, many students are hungry for real-world experience—even if it means a summer without pay. However, the use of unpaid interns is only allowed in certain, limited circumstances and the consequences of misclassifying interns can be costly.

For example, an unpaid intern recently sued PBS host Charlie Rose and his production company, alleging that she was not paid for the work she did. The lawsuit claims that the intern worked 25 hours per week for the show, but did not receive any training and was required to perform work without receiving pay.

There are limited circumstances under which an employer can provide training or training opportunities to an individual without making the individual a paid employee. The Fair Labor Standards Act (FLSA) presumes that all workers are entitled to minimum wage and overtime, unless they meet the requirements of the statute’s few narrowly tailored exemptions. Depending upon the particular facts, an unpaid intern may qualify as exempt under the "trainee" exemption. Employees have to be paid, while trainees do not.

Under the FLSA, it is impermissible for an individual to volunteer his or her services to a for-profit employer in the private sector; rather, all work must be paid work. The FLSA does, however, make an exception for "trainees," who are not considered to be employees and, thus, need not be paid for their work. According to the U.S. Department of Labor (DOL), trainees are not considered employees (and thus need not be paid) only if all of the following criteria are met:

• The training is similar to that which would be given in a vocational school, even though it includes actual operation of the facilities of the employer

• The training is for the benefit of the trainees or students

• The trainees or students do not displace regular employees, but work under close supervision

• The employer that provides the training derives no immediate advantage from the activities of the trainees; on occasion its operations may actually be impeded

• The trainees or students are not necessarily entitled to a job at the conclusion of the training period

• 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 has noted that “in the typical externship or internship program, where the work activities are simply an extension of the student's academic program, these factors often are met and an employer-employee relationship does not exist.” The DOL also will consider whether the intern is enrolled in school, receiving academic credit for participation in the program, and whether the work is required for a degree.

In sum, in determining whether an individual should be considered an "employee" or a "trainee," the courts and administrative agencies balance the cost to the employer against the benefit gained by the employer. In other words, if the presence of the trainee actually costs the employer money or hinders the employer's operations, while providing little actual benefit to the employer, this factor will militate towards trainee status. Put another way, the less productive the work which the trainee performs, the greater the likelihood that the individual would be found to be a trainee.

Additionally, the use of unpaid interns implicates workers’ compensation law. In many states, interns are covered regardless of their payment status, as many workers' compensation laws provide a very broad definition of “employee.”

The consequences for failing to properly pay interns can be substantial. Potential consequences include:

• Liability for unpaid wages for all hours worked, including overtime and any missed rest and meal periods
• Liability for unpaid, employment-related taxes owed to governmental agencies
• Attorneys’ fees, if the intern’s claim for unpaid wages is successful

Accordingly, companies wishing to use unpaid interns should undergo a fact-intensive inquiry to ensure that their intern program meets the guidelines set forth by the DOL. Otherwise, that unpaid intern could cost the company much more than they bargained for.