Students and others seeking to enter the workforce may desire an internship. The internship provides on the job training and insight about an employer’s job environment that an individual cannot obtain in a classroom. Interns demonstrate their skills and work habits, which may lead to regular employment. Many for-profit employers are willing to provide these opportunities because they are unpaid. Others provide stipends or reduced salary.

Media reports in recent months reveal a growing trend among government agencies and employee advocates to challenge the legality of unpaid internships. Some detractors apparently believe unpaid internship positions exploit young people, allowing employers to reap the benefit of slave labor.

For example, In June 2013, a federal court ruled that Fox Searchlight Pictures violated wage laws by not paying its interns. During the same month, interns who once worked for Charlie Rose’s production company were given $1,100 in back pay after they brought a lawsuit. In both cases, the interns allegedly were performing menial tasks that a paid employee should have been doing like sweeping floors, taking phone calls, and stocking the food service tables. In February 2013, an intern filed a $50 million wage and hour lawsuit against Elite Model Management. Former interns from companies including the Hearst Corporation, Atlantic Records, and Warner Music Group have filed similar suits.

The government, too, has become involved. The U.S. Department of Labor earlier this year reiterated its rules regarding unpaid internships under the Fair Labor Standards Act and pledged to crack down on for-profit companies that choose not to pay interns. Officials in Oregon and California investigated and fined several employers who did not follow federal and state guidelines regarding unpaid internships.

Internships will not be considered legal under the U.S. Department of Labor’s rules unless they are paid minimum wage and overtime, or meet the following factors: (1) the internship must provide training similar to the training which would be given in an educational environment; (2) the internship experience is for the benefit of the intern; (3) the employer derives no immediate advantage from the interns activities and the interns activities may actually impede the employer’s business; (4) interns do not displace regular employees; (5) interns are not entitled to a job at the end of the internship; and (6) the employer and intern understand that the intern is not entitled to wages or benefits.

Besides the Department of Labor’s guidelines, California employers must also ensure that (1) internships are a partnership between employer, school, and intern; (2) the intern should not receive employee benefits; (3) the training should be general so as to qualify interns for work in any similar business rather than designed specifically for a job with the employer; (4) the screening process must be based on criteria relevant for admission to an educational program; and (5) advertisements for internships should clearly describe the position is educational or training-based, not for employment.

Colleges and universities frequently encourage students to seek course credit through unpaid internships, which allow students to receive educational training in a “real world” environment. Study areas like biology, engineering, nursing and computer science allow students to shadow employees in their chosen profession and learn the basic skills needed to be successful. For example, internships may pair computer science students with companies that educate them in the practical aspects of computing that can be useful at any computer firm (e.g., general systems programming, biomedical computing, and computer-aided instruction). These programs are more likely to be upheld as lawful because of the educational institutions’ involvement.

Other internships, focused less on vocational education and more on low-skill, menial work as a way for worker to get a “foot in the door,” may be unlawful attempts by employers to receive free labor. Internships are not supposed to be an unpaid “tryout.” For example, one advertisement states a magazine is seeking an unpaid, on-line marketing specialist, responsible for monitoring the company website and overall search engine performance. The ad states the intern will “already” have strong and specific knowledge of online marketing analytics and work experience. In another example, a public relations firm sought an unpaid intern to support four to five top-tier clients on behalf of an account director. The ad specified the intern must have previous public relations firm experience. Neither of these “unpaid opportunities” mention anywhere that the intern will “learn” the business, shadow existing employees, or be trained by their prospective employers.

Tips for Employers

California employers looking to engage unpaid interns must be willing to take on a burden in exchange for attracting new sources of entry-level employees. Before offering an unpaid internship, employers should evaluate whether the position satisfies the criteria discussed above.

The best chance for creating a “legal” unpaid internship is to link the internship to an education program at local higher education institutions. Ideally, the internship will lead to college credit and will have to satisfy requirements dictated by the college or university. Once the college and employer reach an agreement on the logistics of training for credits, they should develop hiring criteria that do not focus on “previous” experience.

The employer may provide the Department of Labor Standards Enforcement (“DLSE”) with a detailed proposal for the internship. The DLSE will provide a legal opinion on whether an unpaid internship will pass muster under federal and state law.

Naturally, employers may avoid the risk of unpaid internships by paying interns at least minimum wage and overtime, and complying with other wage-hours laws (such as meal periods). Although paying interns may increase payroll, employers may avoid significant financial exposure for mis-classifying interns as unpaid “volunteers.”