‘Black Swan’ case highlights danger of unpaid internships

A recent court decision involving two unpaid interns who worked on the movie “Black Swan” shows the danger that companies can get themselves into with internships. If you offer an unpaid internship program – or even if you just bring on an unpaid intern from time to time, perhaps even as a favor to someone – it’s a good idea to carefully review the rules.

Unpaid internships have burgeoned in the last few years, as the practice has grown far beyond college students on summer break. With a tight job market, many out-of-work professionals are looking for internships as a way to get a foot in the door or to explore a career change.

As a result, the U.S. Department of Labor is stepping up enforcement of violations.

The truth is that there are relatively few situations in which an unpaid intern can legally work in a for-profit business. That’s because a valid internship program must be primarily for the intern’s benefit, rather than for the employer’s benefit. Otherwise, the intern is basically an employee and must be paid minimum wage.

A company that improperly hires an intern can be held liable not only for unpaid wages but also for health insurance, vacation, sick pay and overtime, plus penalties for improper tax filings.

According to the government, there are six factors to be considered in deciding if an unpaid internship is okay for a private-sector business. All the factors must be met to make the internship legal – regardless of whether the intern voluntarily agrees to work without pay.

The factors are:

  • The training is similar to what would be provided in a vocational school or educational institution.
  • The training is for the benefit of the intern.
  • The intern doesn’t displace any regular employees, but works under their close observation.
  • The employer derives no immediate advantage from the intern (and on occasion its operations may actually be impeded).
  • The intern is not entitled to a job at the conclusion of the internship.
  • Both the employer and the intern understand that the internship is unpaid.

In the Black Swan case, two interns who worked on the movie filed a class action against the production company. The interns claimed that they spent time taking lunch orders, answering phones, arranging other employees’ travel plans, tracking purchase orders, taking out trash and assembling office furniture. They claimed these activities had little educational benefit, and that they were basically doing work that the company would otherwise have had to pay someone to do.

And a federal judge in New York agreed with them.

The judge acknowledged that the interns “received some benefits from their internships, such as résumé listings, job references and an understanding of how a production office works.” But he wrote that “those benefits were incidental to working in the office like any other employees and were not the result of internships intentionally structured to benefit them.”

The judge specifically rejected the idea that an internship is okay just because the benefit to the intern is greater than the benefit to the company, or just because the intern receives academic credit.

There has been a spate of internship lawsuits recently. Among others, suits have targeted high-profile companies such as the Charlie Rose TV show, Harper’s Bazaar magazine, Warner Music Group, and the Pittsburgh Power arena football team.

If you still want to offer an unpaid internship, it’s wise to create a written document that shows how the internship meets the criteria and states what the company expects from the intern, that it is an educational experience, that the internship is for a specified period, and that it’s unpaid.

Interns should learn new skills, and not just perform clerical tasks. Where possible, it’s wise to rotate them through several departments.

Also, an unpaid internship should never be used as an “introductory” or “probationary” period prior to someone’s being hired.

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