In an economy recovering from a recession, many companies offer unpaid internships to students able to sacrifice payment for the benefit of experience. Even recent graduates unable to find employment have settled for unpaid work. So just when an employer thinks it can save money while increasing manpower, the law pumps the brakes.
On June 11, 2013, a federal district judge held that unpaid interns were in fact employees entitled to pay under the Fair Labor Standards Act (FLSA). Despite acknowledging to an agreement not to be compensated in exchange for experience, the interns at Fox Searchlight Pictures argued that they were performing the same work as paid employees and received nominal benefit. And an agreement to waive potential violations of rights is generally held invalid.
Under the FLSA, the general rule is to pay anyone who is permitted to work. An intern is an exception if the intern’s benefit exceeds the employer’s benefit, and the employer does not exercise the same amount of control it has over paid employees. For Fox Searchlight, not offering college credit and having interns perform the same menial tasks as paid employees made it susceptible to liability. And under the FLSA, an employee can receive double damages for lost wages.
Distinguishing interns or volunteers from employees as been an issue for years, but the publicity of this case may halt potential usage of unpaid interns. The last thing a company wants is to argue in court over whether a disgruntled intern was in fact an employee. For many, disputing with paid employees drains enough money from its revenue. Alternatively, most unpaid interns do not turn around and sue for compensation and it offers great training in the event a full time position becomes available. Should college students be concerned?