Intern Pool—Free Labor, Vague Regulations

By Heide B. Malhotra, Epoch Times
July 24, 2013 12:05 pm Last Updated: July 24, 2013 4:12 pm

Given the subdued job market, internships are still in vogue. Students desire to gain job experience and enhance their resumes, and companies benefit by having low-paid employees. But this only works if interns eventually land a full-time job. Recent data, however, suggests some companies are using internships to permanently save on costs. 

“Internships have become a means for companies and non-profit organizations to re-package once paying jobs and cut corners in a tight economy,” according to an article by Anna Lekas Miller, who covered this aspect of the job market on the AlterNet website. 

Massive changes have occurred in the internship landscape since 1992, when only 9 percent of college undergraduates worked as interns before graduating. By 2008, 80 percent of graduates worked as interns, according to Miller, referencing statistics from the National Association of Colleges and Employers (NACE). 

The most recent statistics by NACE show close to two-thirds of students from the graduating class of 2013 worked as interns, 47.8 percent of them for free. 

Most of the interns want to work in the private sector. By 2013, 56.3 percent of interns chose for-profit organizations, rather than government (15.7 percent) or not-for-profit organizations (28.1 percent). 

Story Behind the Numbers

Since the supply of interns has exploded over the last 20 years, the negotiating position of companies has strengthened markedly. Today, it is very difficult to find a paid internship. Many companies and public sector entities—including small businesses, local governments, and hospitals—lack funds to pay interns. 

However, full-time jobs are mostly awarded to graduates with a paid internship on their resume, and their starting salaries tend to be higher. NACE reports that companies offered employment to 63.1 percent of formerly paid interns. Only 37 percent of students with an unpaid internship under their belt received a job offer, which is just 1.8 percentage points higher than students without a history of internship. 

The formerly paid interns were offered a starting salary of $51,930 on average. Students who completed an unpaid internship started at just $35,721, even less than the $37,087 paid to students who never worked as an intern

Nonetheless, the above statistics can be misleading. According to labor relations experts, the majority of paid internships are in the business, engineering, accounting, and financial sectors. Most unpaid internships are in federal or local government, health fields, psychology, and education. 

Paid internships are offered in sectors that pay above average wages anyway and where it is often a prerequisite to have completed an internship to be hired full-time. However, for such a position, interns must have a background that suits the company. 

For example, Google offers a highly competitive paid internship. It offers development and training, the same perks as full-time employees, a decent salary, and relocation expenses. 

Grasping Fundamentals of Paid and Unpaid Internships

So if Google can do it, why can’t other companies as well? Actually, there are regulations that force companies to pay their interns under certain circumstances. The problem is that they are unclear. 

The U.S. Department of Labor (DOL) Wage and Hour Division says that according to the Fair Labor Standards Act (FLSA), a company must pay at least the federal minimum wage and overtime pay. 

However, this does not include interns working for political offices, not-for-profit entities, or local, state, or federal government—almost half of all interns. 

For everybody else, there is a six-factor test, published by the DOL, which determines if someone is an intern or an employee. If all of the criteria are met, it is OK not to pay an intern. The criteria are as follows:

1. The internship, even though it includes actual operation of the facilities of the employer, 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 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. 
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship. 

While the test is relatively clear-cut, according to the National Association of College and University Attorneys (NACUA), the six-factor test “has never been fully and universally endorsed by the courts and has not been subjected to the rulemaking process.” 

The DOL has applied the six-factor test when asked for an opinion concerning paid or unpaid internships. The courts have not been consistent, however, with some recognizing the legitimacy of the test, and others using the test as a benchmark. Some courts refused to use the test. This leaves plenty of legal room for companies to use interns instead of fully paid positions. 

Interns Use Courts to Get Paid

On the other hand, this gray area also gives interns fed up with receiving no pay the opportunity to take legal action.

“Employers believe using unpaid interns is a smart financial move that allows their companies to save money on wages. However, this line of thinking has become much riskier in the wake of a recent court decision and the filing of new lawsuits,” business consultancy firm EHTC states in a recent note. 

This litigation addressing unpaid internships may even change the future internship environment. 

The most prominent case saw the legal team of Outten & Golden LLP calling for anyone who worked as an unpaid intern with NBCUniversal, Conde Nast, The Hearst Corp., or Fox Searchlight to contact their firm. 

In another class action suit, Judge Pauley of the Southern District of New York ruled on June 11 that former production interns for the 2010 film “Black Swan,” a production of Fox Searchlight Pictures Inc., were employees under the FLSA and thus should be paid.

The judge did not address the six-factor test in his conclusion; however, “the court emphasized that FEG [Fox Entertainment Group] and its divisions recruited all of the interns for the same reason—to help with busy periods—and that they had displaced paid employees,” according to a recent article by the law firm Patton Boggs. 

Some former interns have been successful in their legal action approach. On Dec. 18, 2012, Outten & Golden filed a class action lawsuit against the “Charlie Rose” show on behalf of 189 former unpaid interns who worked on the show between March 2006 and October 2012. The judge approved a settlement in June. Rose and the production company agreed to pay $250,000. 

The latest court rulings indicate that the unpaid internship bonanza might soon be over and could even have a costly aftereffect. Whether this will help improve the job market for full-time workers remains to be seen.