Internship Essentials
Under California law, an unpaid internship must meet the following criteria:
- (1) The internship, even though it includes the periodic benefit of a wage or a commensurate stipend, is similar to training which would be given in an educational environment;
- (2) Such training is for the benefit of the intern;
- (3) The intern does not displace regular employees , but works under close supervision of current 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; and
- (6) The employer and the intern understand that the internship is conducted without entitlement to a paid job.
Legal Support and Statutes
The legal framework dealing with unpaid internships in the Golden State encompasses various state and federal laws, not the least of which is the federal Fair Labor Standards Act ("FLSA"). The FLSA establishes a national minimum wage and overtime pay. The FLSA also regulates and addresses the employment relationship. Thus, the FLSA is federal legislation, whereas the state statutes like the California Labor Code and California Industrial Welfare Commission Wage Orders address California’s unique needs for regulating and addressing California’s employment relationship. The FLSA does not specifically address the payment of interns and the issue of unpaid internships. However, the U.S. Department of Labor has issued guidance and regulations under the FLSA concerning "students-interns" that are utilized by for-profit employers. The U.S. Department of Labor issued Fact Sheet No. 71, which relates to the employment of interns under the FLSA, as set forth below:
Internship Programs Under The Fair Labor Standards Act
The Fair Labor Standards Act (FLSA or the Act) governs minimum wage and overtime pay for employees. The Department of Labor established regulations that address who qualifies as an "employee." The FLSA defines "employ" as "to suffer or permit to work." 29 U.S.C. 203(g). Thus, an unpaid internship program will be considered an employment "employment relationship" if the employer and the individual "mutually understand" the intern will not be entitled to wages for work. This "understanding" is not necessary where the intern or student is working for a non-profit or government entity. Under the Act, a job is performed in exchange for compensation when an employee is on the employer’s payroll and is scheduled to work for a specific period. If the vocational training or internship is related to a student’s formal education and its elements are designed to fulfill academic objectives, it is less likely that the "employment" factor would be satisfied. Under the Act, the primary beneficiary test is the correct test to apply when determining whether a worker is an employee, as opposed to a trainee or intern. The primary beneficiary test involves consideration of the "economic reality" of the relationship between the intern and employer. The determination of this issue is complicated. In this situation, a court or administrative agency like the Division of Labor Standards Enforcement (DLSE) will look at the "totality of the circumstances" of the internship to evaluate the relationship of the parties. The following factors will be evaluated: (1) the extent to which the intern and employer clearly understand that there is no expectation of compensation; (2) the extent to which the internship provides training similar to that given in educational environment, as well as the training is tied to the intern’s coursework; (3) the extent to which the internship accommodates the intern’s academic schedule; (4) the extent to which the internship’s duration is limited to the period in which the internship provides beneficial learning to the intern; (5) the extent to which the intern’s work complements, rather than displaces, the work of paid employees while augmenting the employee’s experience; and (6) the extent to which the intern derives no immediate advantage from the activities of the company, and that the employer’s operations may be impeded. An internship will be viewed as an employment relation if the employer receives an immediate advantage from the activities of the intern or the employer’s operations are impeded by the intern’s work. The state’s Wage Orders, codified at Cal. Code Regs. tit. 8, § 11000 – 11170, do generally discuss internships and trainees. This is apparent in Wage Order 16-2001, applicable to the Public Occupation, specifically sections 1(A) and (B). However, the Wage Orders are not identical, and there are some which do not discuss internships at all, for example, Wage Order 15, applicable to professional, technical, clerical, mechanical, shop and similar occupations, whose own section 1 published and effective July 1, 2015, does not discuss the use of interns or trainees. Therefore, depending on what industry an employer is in, certain Wage Orders will impact and regulate the use of interns. However, there are some state statutes that could be argued with some success to apply regardless of the type of interns an employer uses.
The Six Requirements for Unpaid Internships
The Department of Labor has promulgated six criteria that its prosecutors should use in determining whether an internship or training program is exempted from the wage and hour laws. The first five criteria, if met, would exclude a worker from being considered an employee, and thus subject to the various wage and hour requirements of the federal Fair Labor Standards Act (FLSA). Each of these is equally applicable under the California wage and hour laws.
The first criterion is that the internship or training program, even though it includes clinical or other hands-on activities, must be similar to the training given in an educational environment. This does not mean that the training must be "academic" in nature, but that its primary purpose is vocational. For example, some courts have distinguished between training for unskilled labor, such as the training that warehouse workers may receive to operate machinery, versus training for skilled labor such as apprenticeships for electricians, carpenters, and plumbers, where a skilled trainer is going to invest a substantial amount of time teaching the new worker how to use their tools in whatever trade or skill they are licensed to perform.
Second, the training company must derive "no immediate advantage" from the activities of the intern. To the contrary, the company must be more like a school, that is paying to educate the trainee. Because it can be difficult to show that a paid worker is being trained when the business is deriving "immediate advantage" from their work, employers must analyze this question carefully in making the decision whether to pay interns.
Third, the intern must not displace regular workers — that is, the intern or trainee cannot be performing the same tasks that a paid workers would otherwise be doing, nor deprive regular employees of their anticipated work.
Fourth, the employer must have similar practices as other employers with which it competes. This means that if the employer is not paying interns for work comparable to any other employers engaged in the same business, this could support the argument that the interns are simply being exploited for free labor.
Fifth, the employer must have made it clear that the internship is not likely to lead to a paid job. One of the most potent tools for defending against a misclassified intern claim is to require an intern to sign a release of claims, so that the prospective intern is informed of the lack of a job offer up front in exchange for signing away their future claims.
The last criterion is that the intern must understand, during the course of their experience, how much they are not being paid. The FLSA requires the employer to disclose to the intern, at the beginning of the internship (and pre-disclosure is always better), that the intern understands the arrangement and that the intern is not receiving any pay for their work. This standard is not yet in force in California, but is a best practice for any employer to follow when hiring interns.
Learning and Training Component
In addition to the primary beneficiary analysis, California courts look to see if an unpaid intern was actually the recipient of valuable training or educational credits. The employer does not have to pay for the education and training, but there must be some incidental benefit to the intern’s academic or vocational advancement.
For example, in the Wage Order context, there must be an educational or training program supervised by a nonprofit or government charitable organization in conjunction with a school that provides academic credits for the interns, and the programs must be at least nine weeks. (See California Unpaid Interns for more information about unpaid interns in California.) With the fallout from the Ernst & Young litigation, employers should keep in mind that the educational aspect not only pertains to school credits but can also include training designed to enhance the intern’s skills outside the specific experience. For example, training that is designed to replace or supplement vocational or other educational offerings—like resources not typically available at the educational institution—such as seminars, workshops, conferences, lecture series, or supervision is arguably educational and benefits the intern, and may be overlooked by many employers.
The Effect of New Court Cases
The legal landscape regarding unpaid internships has been in flux in California over the last several years, resulting in confusion for employers. With an increasing number of California employers being sued for unpaid internship practices, and a recent appellate court decision providing a surprising interpretation of California’s labor laws, now is a good time to review the legality of your current internship program.
One of the cases with which employers may be familiar is Wang v. Chinese Daily News (U.S.) Inc., which was filed in 2009 by a group of interns who worked between 2007 and 2009 for the Chinese-language daily newspaper. The interns alleged that they had been promised a full-time paid position upon completion of their full-time, unpaid internship. The case was certified as a class action and, after a 2014 jury trial, the interns were granted just under $600,000 in damages, which included compensation for the interns’ loss of "compensation they would have earned from that work at minimum wage."
In late September of this year, however, in Dong v. Board of Trustees of California State University (California State University), the California Court of Appeal expressly rejected this approach, reaffirming a narrow view of the FLSA’s internship test to exempt nonprofit organizations. The plaintiff in Dong was an unpaid intern who participated in a post-graduate optometry residency program for non-profit California State University. The program, which was sponsored by the non-profit Northeastern Ohio Universities College of Medicine and Pharmacy, was extended to California public schools to provide health care services to underserved populations.
The trial court had concluded that California State University was not required to provide paid wages to Dong because he met the criteria of a FLSA intern and therefore the California Labor Code did not require paid wages. The trial court also concluded that requiring payment to a "student practitioner" would be the same as requiring payment to a student during school hours.
The Workers’ Compensation Appeals Board and the California Court of Appeal agreed with the trial court. First, consistent with federal law, the court declined to conclude that California State University had violated California’s Wage Order No. 5-2001 because California does not require an employer to pay a "student practitioner" for clinical training time. Second , the court noted that, under California law, a "student practitioner" doing coursework related to a degree or certification program to gain practical experience in the field of medicine or science is not defined as an employee. The court noted that the plaintiff had failed to show that the California legislature anticipated requiring payment for student practitioner services and, under these circumstances, the court was constrained to interpret "employee" under the California Labor Code in the same manner as the FLSA.
The case is currently pending before the California Supreme Court. The court of appeal granted a petition for review to determine "if a trainee who is also a ‘student practitioner’ is considered an ’employee’ under California labor law and whether State University’s unpaid internship violates California or federal law." While we expect there to be further developments on this issue in California, the Dong decision reflects the fact that California courts (at least at the trial court and appellate levels) continue to maintain a relatively narrow interpretation of California and federal law regarding the treatment of unpaid interns in certain circumstances, such as where the interns provide medical or science-related services to ill people. We will continue to monitor the status of this case with great interest.
Finally, it’s worth noting that on September 9, 2016, the Ninth Circuit Court of Appeals invalidated its prior interpretation of the FLSA test for unpaid interns and adopted the more employer-friendly interpretation of the U.S. Department of Labor’s Test for a Trainee, as set forth in its Fact Sheet #71 on interns. (Interns Who Qualify for the Minimum Wage and Overtime Pay). The Ninth Circuit, however, clarified that its new interpretation would apply retroactively only to cases where summary judgment had not been issued and a jury had not rendered a verdict by the date of the decision. As one of the cases in the Ninth Circuit where summary judgment was granted prior to September 9, 2016, the newspaper interns’ claims (in Wang v. Chinese Daily News) remain valid and could set a new precedent reforming California’s test for interns. If upheld on appeal, this could have a significant effect on unpaid interns and the employers who hire them.
Employer Obligations
While California law does not require employers offering unpaid internships to obtain documentation from interns in most instances, it still may be prudent for employers to have appropriate documentation in place. In some cases, interns may be considered "students," and the employer may need to prove the internship was part of the student’s curriculum for purposes of certain Federal and State laws, such as Title IX of the Education Amendments of 1972, 20 U.S.C. § 1681 et seq., and Unemployment Insurance Code Section 1253.5. Further, having appropriate documentation in place helps ensure transparency, clarifies the parties’ relationship, and protects the employer against legal liability, especially considering that interns generally are afforded the same rights as regular employees under California Labor Code section 1171.
As a starting point, employers should consider the following activities and documentation requirements: The above is not an exhaustive list of every possible compliance requirement associated with unpaid interns, and we encourage employers to review the particular facts and circumstances of their unpaid internships with legal counsel.
Intern Rights
Interns have many of the same rights and protections under the law that other employees have. It is also important for interns to know their rights and be able to enforce them, so they can protect themselves from unpaid work, unsafe working conditions, and other potentially unlawful treatment.
Intern’s Rights in California:
Interns are generally entitled to a minimum wage unless they fit into one of the limited exceptions to the general rule. See the "Unpaid Interns" section of this webpage. Interns are also entitled to reimbursement for expenses incurred for performance of their duties. If your internship requires you to buy supplies or materials, you should be paid back for those expenses. Interns generally do not have a right to health care, retirement, or similar benefits that generally would not extend to mere volunteers. However, interns must be paid for all hours they have worked, including overtime for non-exempt interns. Non-exempt interns must also generally receive meal and rest breaks required for regular employees.
Interns are also protected by the FEHA from discrimination, harassment and retaliation. Examples of such actions include a sexual harassment claim if an intern is fired after complaining of improper sexual advances or a disability discrimination claim if he is asked to leave because of his disability. Interns should also be paid for reporting time and split shift premium pay if they qualify as employees under California law.
Conclusion and Best Practices
As we’ve outlined above, determining whether an unpaid intern must be paid as an employee under California law requires a careful consideration of the six-factor test set forth in the Wage Orders and subsequent judicial decisions. While many internships should be treated as employment subject to the requirement that an employee be paid at least the minimum wage, there are some internships that satisfy the above test and should not be treated as employment for wage and hour purposes.
As to best practices, we recommend that employers consider the following:
- Review the California Labor Code and relevant Wage Orders.
- Consider the relationship between the intern and the employer (e.g., will the intern perform the same tasks as an unpaid employee, is the internship central to the internship program , is there any other benefit or consideration for the employer, etc.)
- Provide the intern with a written acknowledgment setting forth the nature of the internship, its educational nature, and the fact that it is unpaid.
- Consider whether payment for transportation, food, or other expenses, even nominal ones, will be made to the intern. If so, determine whether an economic benefit will be conferred on the employer.
- Consider whether the internship program will be presented to that institution’s students (e.g., as for school credits) and if so, whether the school will or must oversee or provide feedback on the internship program to the employer.
- If the internship is unpaid, then make sure the internship qualifies for the educational exclusion.