In California, unpaid internships are legal. However, employers have to comply with both state and federal laws in order to host an unpaid intern. Federal guidelines require that the internship benefits the intern, not the employer. California requires employers to submit a proposal for the internship to the Division of Labor Standards Enforcement (DLSE) for approval.
What does federal law say about unpaid internships?
Federal law looks at the economic reality of the employment relationship to determine whether you are an intern or an employee. Courts use the “primary beneficiary test.” This asks whether the party that is the primary beneficiary of the arrangement is the:
- intern, or the
- the employer. [I]
If the employer is the primary beneficiary, then you are misclassified as an intern.
According to guidance published by the U.S. Department of Labor (DOL), there are 7 factors to consider when determining who is the primary beneficiary:
- whether there is a clear and mutual understanding that there will be no expectation of compensation for the work performed,
- the extent of the training provided and how similar it is to an educational environment,
- whether the internship is tied to the intern’s formal education program, including whether the intern is getting academic credit from an educational institution,
- whether the internship accommodates the intern’s academic commitments, such as by working around the academic calendar,
- whether the duration of the internship is limited to the time period in which the training is provided,
- the extent to which the intern’s work complements, rather than displaces, the work of other paid employees, and
- whether the intern and employer mutually understand that there is no guarantee of a paid job at the conclusion of the internship.[2]
No single factor is outcome determinative. The analysis depends on the unique circumstances of each situation.[3]
These factors are used to determine whether you are actually an:
- unpaid intern, or
- employee.
If you are an employee, you have legal rights under the Fair Labor Standards Act (FLSA), the primary federal labor law. This includes entitlements to:
- a minimum wage, and
- overtime pay.
These guidelines are new. The DOL only issued them in January, 2018. However, they draw from decades of federal court cases.
What do California employers have to do to make unpaid internships legal?
California employment law has additional requirements for employers to meet. Employers in the state have to apply to DLSE in order to set up an unpaid internship. Only if DLSE approves the application can the internship program proceed without pay.
The application to DLSE has to outline the proposed internship. To be approved, the application has to convince DLSE that:
- the internship would be part of the coursework in an educational program,
- the intern would not receive any employee benefits, including health insurance or workers’ compensation coverage,
- the intern would be trained or get work experience in a specific industry, and
- the employer would be upfront about the lack of pay.[4]
If the unpaid internship program is not approved, the employer must treat interns as regular employees.
What legal recourse do unpaid interns have?
If you are an unpaid intern but think that you are being treated like an employee, you can file a worker misclassification claim. If successful, this claim would recover:
- enough unpaid wages to meet the minimum wage,
- other benefits, and
- attorneys’ fees and interest on unpaid wages.
In most cases, unpaid interns would be reclassified as nonexempt employees. This means that you would also be entitled to recover:
- unpaid overtime, and
- compensation for missed meal or rest breaks.
While full-time interns could recover substantial amounts, even part-time interns stand to benefit.
However, it can be difficult to choose to take this route. Filing a lawsuit for unpaid wages can hurt your reputation. You are unlikely to get offered a job where you interned if you file a claim against the company. You may struggle to find work elsewhere if your employer withholds a recommendation because of your legal claim. Unfortunately, some companies count on this hesitation to get free labor from young workers.
Getting the legal advice of an employment lawyer from a reputable law firm is very important.
Legal References:
[1] See Benjamin v. B & H Educ., Inc., 877 F.3d 1139 (9th Cir. 2017).
[2] U.S. Department of Labor, Wage and Hour Division, “Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act” (January 2018).
[3] Same.
[4] See, e.g., DLSE Opinion Letter 2010-04-07.
