Unpaid internships are increasingly a fact of life for college students. The National Association of Colleges and Employers found that 55 percent of the class of 2012 had an internship or co-op during their time in college. Almost half of those - 47 percent - were unpaid. A third of internships at for-profit companies were unpaid.
Depending on how you look at it, this is either massive exploitation of young people by powerful corporations that worsens inequality, or a valuable opportunity for on-the-job training at a lower cost than a degree or certificate at a college or university.
But whatever your moral leanings, a judge confirmed on Tuesday what intern advocates have been alleging for years: A lot of these programs are illegal.
Judge William Pauley III of the U.S. District Court for the Southern District of New York ruled that Fox Searchlight's use of interns in producing the movies "Black Swan" and "(500) Days of Summer" violated minimum-wage and overtime laws, and that those interns can file a class-action lawsuit against the studio.
He concluded that they had served the same functions as paid employees and required no special training. While the employer got the benefit of their work, the interns "received nothing approximating the education they would receive in an academic setting or vocational school," the judge wrote.
The legal tests being hinted at there - of whether an internship provides valuable training, or whether it benefits the firm or the intern more - reflect the reasoning of a 2010 fact sheet put out by the Labor Department's wage and hour division, which enforces these laws. The fact sheet sets up six criteria to determine whether an unpaid internship is legal, including that the employer "derives no immediate advantage from the activities of the intern" and that the "internship experience is for the benefit of the intern."
Pauley cited that fact sheet, reproduced all six points and then proceeded to determine whether the internships in this case satisfied all six requirements. Perhaps the most important result of the ruling is that it effectively treats the fact sheet as a binding interpretation of federal law regarding internships.
Many different factors
Some employment attorneys think that is a mistake. "You've got to consider a lot of different factors, including these six factors," said Camille Olson, a partner at Seyfarth Shaw who frequently defends companies in wage-and-hour cases.
A better analysis, she argued, can be found in Xuedan Wang v. the Hearst Corporation, a case in which Wang, a former unpaid intern at Harper's Bazaar, tried to put together a class-action lawsuit on behalf of the Hearst's unpaid interns. The judge in that case, Harold Baer Jr. (also of the Southern District of New York), didn't discount the six factors in the fact sheet, but he also argued that one must look at the "totality of circumstances."
Baer ruled that Wang couldn't file a class action because she couldn't show that all of Hearst's interns faced similar enough conditions for them to file suit together. But more important for future cases, he denied summary judgment for the plaintiffs. That is, unlike Pauley, he declined to rule, without a trial, that Wang and her prospective co-plaintiffs were employees covered by minimum-wage and overtime laws.
That trial has been adjourned indefinitely - although Juno Turner, one of Wang's attorneys at the firm of Outten & Golden, which also represents the interns in the Fox case, said that they're planning on going forward with a jury trial. All of which reinforces Olson's point that Pauley is just one judge, in just one district, and it's hard to predict how appeals court judges will rule in any of these cases.
Nonprofits may be in violation
Interns' advocates disagree vehemently with Olson's suggestion that the reasoning in the Pauley ruling was weak. "I think the reasoning will stand up strongly and clearly," said Ross Perlin, author of "Intern Nation" and a critic of unpaid internships.
Perlin argued that even nonprofit employers - which are allowed to have unpaid "volunteers" - are probably in violation of the law if they have actual unpaid interns. "Just because you're working for somebody who's been classified as a 501(c)3 doesn't mean you don't have to treat them like workers," he said, though he conceded that "interns would have the burden of proving they're not volunteers. Somebody is going to have to step up and make the case."
A logical place to start, he said, would be the District of Columbia. "Congress has exempted its own interns from the Fair Labor Standards Act," he said. "That's something waiting to be addressed."
Olson thinks that's far-fetched. "We've had volunteers at hospitals and not-for-profits that are performing responsibilities, and never had a claim to paid work," she said. "It would be a first, but I don't think there's a strong argument to be made there."
But the two agree that there are many for-profit companies in violation of the law, even if Fox Searchlight and Hearst aren't among them. "In the last three to four years, for-profit companies are really reviewing their internship programs and eliminating unpaid internships more and more, because they don't want to run the risk that there's not enough benefit for the worker," she said. "Of the ones that do offer internships, many have revised them so they are paying minimum wage."
That's largely an effect of media scrutiny, she said, which has heightened awareness and motivated companies to make their programs compliant. That could be the most direct way to bring about change. Olson and Perlin said the Labor Department has not shown any new aggressiveness in enforcement, and added that lawsuits are an expensive and time-consuming way to protect someone's rights. Olson noted that some settlements in such cases have been as paltry as $1,100.
Talk to human resources
She advised interns who think their companies are running afoul of the law to talk to their human-resources department, perhaps through an anonymous tip, or to contact their state or federal wage and hour department to get answers on what's required, and whether the company is violating the rules. Potentially, the matter could be resolved without the cost of a lawyer.
Otherwise, the worst thing that might happen if an intern files an internal complaint is to lose the unpaid internship - and the $0 in future compensation that went along with it.
"In the last three to four years, for-profit companies are really reviewing their internship programs and eliminating unpaid internships more and more, because they don't want to run the risk that there's not enough benefit for the worker."
Camille Olson, partner at Seyfarth Shaw law firm