Can I have an unpaid intern?

Unpaid interns are another type of non-employee designation. An employer may undertake the responsibility of training programs for two different purposes: (1) to train its own employees (i.e. paid workers/interns) and (2) to train persons not on its payroll (i.e. unpaid interns).  When a training program is conducted for persons not on the employer’s payroll (i.e., unpaid workers), a question arises whether such persons will be considered employees of the employer; if so, they must be compensated for time spent in such programs according to applicable federal and state laws. 

Determining proper classification of individuals engaged—between employee and unpaid intern status—rests on both federal and state law. Accordingly, the applicable test may vary depending on where the individual is engaged, and employers may contact WSGR for more information when the exact jurisdictions at play become apparent. 

Within California, specifically, two tests remain relevant in assessing whether an engaged individual qualifies as an unpaid intern.  First, the Ninth Circuit (which covers California, among other states) and the U.S. Department of Labor (“DOL”) have adopted the “primary beneficiary” test that finds bona fide intern status when the individual engaged, and not the employer, is the “primary beneficiary” of the relationship.See Benjamin v. B & H Educ., Inc., 877 F.3d 1139 (9th Cir. Dec. 19, 2017); DOL Fact Sheet #71, dated January 2018, (https://www.dol.gov/whd/regs/compliance/whdfs71.htm).  The DOL applies this test to federal law and the Ninth Circuit applies this test to federal and California law. They consider the following non-exhaustive list of factors when determining which party in the relationship is the primary beneficiary:

• the extent to which the intern and employer clearly understand there is no expectation of compensation;
• the extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions;
• the extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit;
• the extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar;
• the extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning;
• the extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern; and
• the extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

These factors are not dispositive, and the application of these factors requires weighing and balancing the circumstances.

Second, the California Department of Labor Standards Enforcement has remained silent on whether it, too, will join the DOL and the Ninth Circuit in adopting the primary beneficiary test. Employers should take a cautious approach and interpret the DLSE’s silence to mean that the six-factor test it has used remains valid.See DLSE Opinion Letter, Dated April 7, 2010 (https://www.dir.ca.gov/dlse/opinions/2010-04-07.pdf). To find that an individual engaged is a bona fide unpaid intern, the DLSE wants to see that: 

• the training for the interns, even though it includes actual operation of the employer’s facilities, is similar to that which would be given in a vocational school;

• the training is for the benefit of the interns (not the employer);

• the interns do not displace regular employees, but, rather, work under their close observation;

• the employer derives no immediate advantage from the activities of the interns, and on occasion, the employer’s operations may be actually impeded;

• the interns are not necessarily entitled to a job at the conclusion of the training period; and

• the employer and the interns understand that the interns are not entitled to wages for the time spent in training.

There is litigation risk and potential liability for unpaid minimum wage and overtime, state and federal taxes, and penalties if an employer improperly uses unpaid interns. If your company is unable to meet all of the criteria listed above for its internship program, you should consider bringing on interns as temporary, paid employees.

The above overview is not exhaustive. Some details have been omitted. Please feel free to contact WSGR to obtain more information about properly classifying workers as unpaid interns.

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