Recently in Supreme Court Decisions Category

March 17, 2011

Is it legal for a nonprofit organization to use unpaid interns?

iStock_000000723468XSmall.jpgAs our last post explained, for-profit businesses are very limited in their ability to use unpaid interns legally. Unless the internship program meets six different criteria to qualify the intern as a trainee, the intern is an employee subject to the Fair Labor Standards Act (or FLSA), and the business must comply with the requirements to pay minimum wage and overtime compensation. Nonprofit organizations may also have trainees, and the analysis that applies to businesses also applies to nonprofits.

For nonprofits, however, there is a third possibility. The intern may qualify as a volunteer, in which case the intern is not an employee under FLSA and not subject to the minimum wage and overtime compensation requirements. The footnote to Fact Sheet #71 issued last year by the Department of Labor explained that the Department's Wage and Hour Division recognizes an exception to FSLA for individuals who volunteer their time to nonprofit organizations for religious, charitable, civic, or humanitarian purposes, provided they do so freely and without expecting any compensation. In those situations, unpaid internships are generally allowable.

There are some limits, however. Perhaps most importantly, individuals who work in a commercial operation (such as a clothing store or a farm) operated by a nonprofit organization are likely to be deemed employees and therefore subject to the FLSA. That's essentially what happened in the 1985 U.S. Supreme Court decision, Tony and Susan Alamo Foundation vs. Secretary of Labor. Although that case had the additional factor that the individuals who worked for the nonprofit also received benefits such as clothing and room and board, in my opinion it is likely the Court would have reached the same decision even if the individuals had received nothing.

In addition, the Wage and Hour Division has hinted that relevant factors might also include whether the intern works full-time and whether the intern displaces any employees. For example, in a 2006 opinion letter, in describing the exemption for volunteers, the Division stated,

"Typically, such volunteers serve on a part-time basis and do not displace paid workers or perform work that would otherwise be performed by employees."
However, I'm not aware of any guidance to indicate that the Department of Labor will take the position that working full time, in and of itself, precludes an individual from being considered a volunteer.


Although the volunteer must work without any expectation of being paid, it is nonetheless permissible for the nonprofit to pay the expenses of the volunteer, to provide some reasonable benefits, and even to pay a nominal fee. In order for the fee to be "nominal," the amount may not depend on the volunteer's productivity or the number of hours worked. In addition, the fee or stipend should not exceed 20% of the amount it would cost the nonprofit organization to pay an employee to perform the same tasks. For more explanation, you might want to read Opinion Letter FLSA2005-51.

A final note of caution: As I mentioned in the entry dealing with business interns, determining whether an intern is either a trainee or a volunteer, and therefore not an employee, is relevant only for the Fair Labor Standards Act. There are many other legal requirements, including state law requirements, that apply to "employees," and each of those requirements has its own definition which may be different from the FLSA definition.

Continue reading "Is it legal for a nonprofit organization to use unpaid interns?" »

March 15, 2011

Is it legal for a business to use unpaid interns?

iStock_000005128841XSmall.jpgWith summer vacation approaching, and with the job market being what it is, small business owners may be approached by college or high school students offering to work as undpaid interns. At first, that may seem like a great idea -- the business gets free help for the summer, maybe to fill in for vacationing employees, and the student gains experience and a chance to build a resume. Sounds like a win-win situation, right?

Well, maybe not. In fact, the situation could place the business on the receiving end of a lawsuit or government enforcement action. The problem is that most interns at for-profit businesses qualify as employees under the Fair Labor Standards Act, or FSLA, and must be paid at least minimum wage and overtime compensation if they work more than 40 hours in a week). In other words, you can't avoid paying minimum wage by paying nothing.

However, there is a very narrow exception for interns that qualify as "trainees." Last April, the Department of Labor published Fact Sheet #71, listing the criteria for determining whether an intern is a trainee. If an internship has all six of the following characteristics, the intern is not classified as an employee under the FLSA.

  1. The intern receives training similar to the training he or she would receive in an educational environment. Preferably, the program should be centered on a classroom or academic setting, not on the business's operations. Ideally, the program should be associated with an educational institution that gives the intern academic credit for the program.
  2. The internship is for the benefit of the intern. If the intern's activities are primarily for the benefit of the employer (see item 5), the fact that the intern also acquires useful job skills is not sufficient to classify him or her as a trainee. Ideally, the intern will learn skills that are useful to other employers, not just to the business sponsoring the program.
  3. The intern does not displace employees. Instead, existing employees closely supervise the intern's work. If the business uses an internship to supplement its staff or to fill in for employees who are absent or on vacation, the intern is an employee, not a trainee.
  4. The business does not derive an immediate advantage from the intern's work; in fact, the internship may even impede the business's operations. Although it can probably be argued that the business always derives some amount of benefit from the internship program, the internship must be primarily and predominantly for the benefit of the intern, not the benefit of the business.
  5. The business will not necessarily employ the intern when the internship is finished. If the business uses the internship as a trial period for prospective employees, the intern is probably an employee, not a trainee.
  6. The intern and the business understand that the intern will not be paid during the internship.

Given those criteria, it's easy to understand why a Department of Labor official told The New York Times last year that most unpaid internships with for-profit businesses are not legal. (The story is different, however, for internships with governmental agencies and nonprofit organizations. That's the topic of a future blog post.)

When the Department of Labor released Fact Sheet #71 last April, some news sources and bloggers described the six criteria listed above as "new regulations." In fact, the criteria are are not new, and they are not regulations. They originated in 1947 with Walling v. Portland Terminal Co., a decision of the U.S. Supreme Court dealing with a training program for prospective railyard brakemen. Since then the criteria have been applied, explained, and refined by lower courts and the Department of Labor. Rather than a new regulation, Fact Sheet #71 can be seen as the Department's warning shot across the bow of businesses that use "unpaid interns" as a source of free labor.

A note of caution about the use of these criteria. If the internship satisfies all six of the above criteria, the intern is deemed to be a trainee and not an employee, but only for determining whether the Fair Labor Standards Act applies. That's only one of many contexts in which the categorization of a person as an "employee" carries legal significance, and different criteria apply in each of those different contexts. Even though a trainee is not an employee for FSLA purposes, he or she may be an employee for other purposes, including the relevant state labor laws.

Continue reading "Is it legal for a business to use unpaid interns?" »

January 28, 2011

Indiana Employers Should be Aware of Recent Supreme Court Decision

Thumbnail image for photo_17888_20100508.jpgMost employers know (or should know) to be very careful about taking adverse action against an employee who has filed a claim of employment discrimination. The need for vigilance is even more important following last week's decision of the United States Supreme Court , holding that Title VII of the Civil Rights Act includes "third-party reprisal" claims. Now, an employee may have a successful retaliation claim if he or she was fired because another employee filed a discrimination complaint.

In Thompson v. North American Stainless, LP, a man was fired after his fiancée filed a sexual discrimination charge against their mutual employer. He, in turn, brought a lawsuit against the company claiming the termination of his employment was in retaliation for his fiancée's discrimination complaint. The Supreme Court agreed that the man could raise the claim, reversing the decisions of two lower courts that had held that he could not. The Supreme Court held that the man had a right to sue because of his "close relationship" with the woman who filed the original discrimination complaint.

The result may be surprising to some people, perhaps more so because the eight Supreme Court Justices who participated (recently appointed Justice Kagan did not) were unanimous. In reacting to the decision of the Court written by Justice Scalia, Jacquelyn A. Berrien, chair of the Equal Employment Opportunity Commission, expressed approval, stating that the decision "reaffirms the importance of preventing retaliation against those seeking to protect their civil rights." Read the entire EEOC press release here. As Justice Ginsburg noted in her concurring opinion (in which Justice Breyer joined), the Court's decision is consistent with the EEOC's long-standing position.

One of the questions that a business should consider when thinking about firing an employee (or taking any other adverse action) is whether that employee has lodged any discrimination complaints and might later claim that the action was taken in retaliation for the complaint. But until now, many employers were probably concerned only with complaints filed by that particular employee. Now, the employer must also consider complaints that may have been filed by some other person with a close relationship. But what qualifies as a "close relationship?" Unfortunately, the Supreme Court did not completely answer the question, saying only that "firing a close family member will almost always" meet the standard. Because of the facts of the Thompson case, we also know that the relationship between two engaged employees is close enough, but would a dating relationship count? What about a pair of really close friends? Or second cousins, once removed? For now, we can only speculate.

Continue reading "Indiana Employers Should be Aware of Recent Supreme Court Decision" »