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Meet the six-prong test before offering an unpaid internship

Remember that unpaid internship you were so lucky to snag in college? Well, according to both a federal judge in Manhattan and the U.S. Department of Labor (DOL), that coffee-delivering-foot-in-the-door opportunity may have violated the Fair Labor Standards Act and entitle you to compensation.

But what if you worked for a nonprofit?

Background

The Manhattan case deals with unpaid interns of a for-profit television corporation who claimed they were being used illegally under the Fair Labor Standards Act (FLSA). Here's a little back story on the law.

In 1947, the U.S. Supreme Court in Walling v. Portland Terminal created a "trainee" exception to the definition of "employ" in the FLSA that allows unpaid internships in certain conditions — no implied or express compensation agreement and the intern must be working for his or her own advantage, not to the advantage of the entity.

In 2010, the DOL issued a fact sheet building on Walling by setting forth six factors whose satisfaction renders an unpaid internship exempt from FLSA requirements (such as minimum wage). The fact sheet explicitly mentions for-profits, but curiously has this concession in a footnote: unpaid internships in the public sector and for non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible. The Wage and Hour Division is reviewing the need for additional guidance on internships in the public and nonprofit sectors.

Six-prong test

No such "additional guidance" has been provided. However, an opinion letter issued by the DOL states that it believes the six-prong test will apply to nonprofits:

  1. The internship, even though it includes actual operations of the facilities of the employer, is similar to training that 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 both understand that the intern is not entitled to wages for the time spent in the internship

Keeping in mind every factor must be satisfied before the internship may be unpaid, look back at the fourth factor. How many unpaid internships did you do, or does your nonprofit currently oversee, that would satisfy it?

Before you get too nervous, a few things need to be made clear. The Manhattan case referenced above was decided by a federal judge, not the Supreme Court, so this is not the law of the land. Furthermore, nonprofits have a few advantages that for-profits don't.

Special considerations for nonprofits

Nonprofits have the advantage of being able to have volunteers. Now, you cannot just call your unpaid intern a volunteer. That in and of itself will not insulate your nonprofit from legal risks. But carefully structuring their experience can help.

According to the FLSA, an individual is a volunteer, not an employee, when the individual meets the following criteria:

  1. Performs hours of service for a public agency for civic, charitable or humanitarian reasons, without promise, expectation or receipt of compensation for services rendered (although a volunteer can receive no compensation, a volunteer can be paid expenses, reasonable benefits or a nominal fee to perform such services.)
  2. Offers services freely and without pressure or coercion, direct or implied, from an employer
  3. Is not otherwise employed by the same public agency to perform the same type of services as those for which the individual proposes to volunteer

Ambiguity in your program is risky. Try the following — but if in doubt, consult an attorney:

  • Have the intern sign an agreement at the start of the relationship clearly stating no compensation will be provided and setting out the duties and responsibilities to be performed are ordinary volunteer work and not a commercial enterprise.
  • In writing, classify the status of the individual as an intern, volunteer or trainee and have both parties sign the agreement.
  • Know if, or how, your insurance covers interns.
  • Clarify how the nonprofit's policies apply to interns.

Any organization, for-profit or nonprofit, can avail themselves of the "trainee" exception (the six prongs), but nonprofits have two advantages for-profits do not. One, there is some ambiguity about whether the FLSA prohibits unpaid interns working with nonprofits and, second, nonprofits can have volunteers. Whether you align your intern program with the six prongs or carefully create a volunteer relationship, set clear expectations and respect the intern enough to make sure the experience is as educational as possible. Do unto interns as your favorite boss did unto you.

For more from Ellis Carter, visit CharityLawyer.

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MissionBox editorial content is offered as guidance only, and is not meant, nor should it be construed as, a replacement for certified, professional expertise.

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Charity lawyer focused on simplifying nonprofit law