Many students at every education level from high school through graduate school—and even some graduates—view unpaid internships as an opportunity to gain valuable work experience and, ideally, as a stepping stone to gainful employment. When the companies for which they intern benefit from the extra help at little to no cost, the relationship appears to constitute a win-win. In many circumstances, however, the Department of Labor (DOL) disagrees.

The Fair Labor Standards Act (FLSA) generally requires employers to pay their employees at least minimum wage for all hours worked, as well as overtime for all hours worked over 40 in a week. Internships and training programs are excluded from this requirement only in limited circumstances. Because the FLSA prohibits employees from waiving their rights under the law even if they want to, it is only under those limited circumstances that interns may work without compensation.

The DOL created a six-part test that must be applied when determining whether an internship or training program meets the FLSA exclusion. Under the test, each of the following criteria must be met:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment
2. The internship experience is for the benefit of the intern
3. The intern does not displace regular employees, but works under close supervision of existing staff
4. The employer that provides the training derives no immediate advantage from the activities of the intern and on occasion its operations may actually be impeded
5. The intern is not necessarily entitled to a job at the conclusion of the internship
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship

When—and only when—all of the above criteria are met, an employment relationship does not exist under the FLSA and the internship may be unpaid. Note that even if a student receives academic credit for his or her participation in the internship, as long as the internship is unpaid, the above six factors still need to be met.

In addition to the six-part test, the DOL has provided guidance that employers can use to structure unpaid internship programs. The guidance includes the following:

• The more an internship program is structured around a classroom or academic experience as opposed to the employer’s actual operations, the more likely the internship will be viewed as an extension of the individual’s educational experience
• The more the internship provides the individual with skills that can be used in multiple employment settings, as opposed to skills particular to one employer’s operation, the more likely the intern would be viewed as receiving training
• If an employer uses interns as substitutes for regular workers or to augment its existing workforce during specific time periods, these interns will be viewed as employees under the FLSA
• If the employer would have hired additional employees or required existing staff to work additional hours had the interns not performed the work, then the interns will be viewed as employees under the FLSA
• The internship should be of fixed duration, established prior to the outset of the internship
• Unpaid internships should generally not be used by the employer as a trial period for individuals seeking employment at the conclusion of the internship period

Several high-profile companies recently have been sued by former unpaid interns who claim they should have received compensation for their work. These lawsuits signal an awareness of FLSA rights on the part of interns and highlight the need for employer diligence and attention regarding this issue.

Employers are encouraged to review their hiring and employment practices as they pertain to unpaid internships, familiarize themselves with the DOL’s six-part test, and train managerial staff appropriately. More information regarding internships and the FLSA can be found here.

For more InsideCounsel coverage on the unpaid intern crisis, read:

Labor: The perils of using unpaid interns

Unpaid intern sues talk show host Charlie Rose

Slate looks at the social problems surrounding unpaid internships

Former unpaid intern sues Hearst Corp., seeks class action

"Black Swan" unpaid interns file class action wage and hour lawsuit