The sun is starting to peak from behind gray clouds, and we all know what that means: summer is almost upon us! School is out, time for beach trips, barbeques, fireworks…and unpaid internships. With droves of undergraduate and graduate students on their way to a summer destination, it's time we revisit unpaid internships.  

Common wisdom suggests unpaid internships are a rite of passage, emphasis on unpaid. Startups are lean, budget conscious and talent hungry. Summer seems like a perfect time to acquire a little more human capital. Perhaps for free? Unfortunately, I have some bad news: having unpaid interns in a for-profit enterprise is a daunting feat. The difficulties involved may not be worth the trouble.   

The Fair Labor Standards Act (FLSA) defines the term "employ" very broadly as to "suffer or permit to work." Those individuals who suffer or are permitted to work must be compensated accordingly; this means employees must be paid at least minimum wage. Often, internships in the for-profit private sector will qualify as employment. In the wake of a U.S. Supreme Court ruling decades ago, the Department of Labor created a six factor test to help businesses determine whether they have an employee or an intern. Despite recent controversy, the test is still helpful as a general guide.

1. The internship 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 the 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; and

6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Looking Ahead

In recent years, the Department of Labor's test has fallen out of favor. Various circuit courts have provided their own tests for determining the existence of a legal unpaid internship.

In Glatt v. Fox Searchlight (2nd Cir. 2015), the plaintiffs were hired as unpaid interns by Fox Searchlight to work on the film Black Swan or at the corporate offices in New York City. The work often involved administrative tasks such as making photocopies, organizing file cabinets, drafting cover letters for mailings, running errands and similar tasks. The Second Circuit determined that the proper question is whether the intern or the employer is the primary beneficiary of the relationship. The "primary benefits test" has two features: 1) it focuses on what the intern receives in exchange for his work, and 2) it also affords courts the flexibility to examine the economic reality as it exists between the intern and the employer. The Court then determined that a consideration of all other factors were necessary to evaluate the relationship.

Since we're in Michigan, let's talk about the decision in Solis v. Laurelbrook Sanitarium and School, Inc. (6th Cir. 2011). Though the Sixth Circuit doesn't quite deal with interns, it does add to the conversation of employment status. In Solis, the Department of Labor brought an action against a boarding school, seeking to prevent alleged violations of child labor. The court settled on the following test:

• As in Glatt, one must ascertain which party derives the primary benefit from the relationship.

• The court considers factors such as whether relationship displaces paid employees, and whether there is educational value derived from the relationship.

• Additional factors that bear on the inquiry should also be considered insofar as they shed light on which party primarily benefits from the relationship.

• A court must consider the tangible and intangible benefits to each party.

In sum, having unpaid interns isn't quite the free labor you were looking for. The federal guidelines prohibit immediate advantage gained from their work. And to some extent, inconvenience is expected. However, that's not to say that unpaid internships are worthless. Rather than temporary access to human capital, think of it as priming the pump. Great internship programs can get the marketplace excited about your company. Don't underestimate an internship's ability to build goodwill, which should affect sales and recruiting.