Compensating with Credentials: The Shaky Legal Footing of the Unpaid Internship

By Benjamin Lempert, From Volume 2, Issue 2

Few Yalies realize how many of their peers participate in illicit activity every summer. Even fewer realize that most of these transgressions take place in the office, behind a desk, or more likely, a copy machine, by participants in the so-called “Intern Economy.” Scholars, journalists, and observers agree that by compensating interns with credentials, networking, and “work
experience”rather than with pay, for-profit firms are in violation of the Fair Labor Standards Act(FLSA).1 Nevertheless, the number of unpaid positions has mushroomed in recent years and continues to grow every summer. According to a 2006 Vault survey, 84 percent of college graduates reported completing at least one internship, while 53 percent said they had completed two or more.2 The worst estimates suggest that roughly half of these interns go unpaid.3    No agency or institution, however, keeps official count of these statistics – a gap in research that reflects the dubious legal status of unpaid interns.4

Legal Foundations: Walling v. Portland Terminal Co. and the Six-Part Test

The FLSA requires, among other things, that for-profit firms pay their employees at least the federally prescribed minimum wage. By the act’s terms, an employee is “any individual employed by an employer,” where “to employ” is defined as including to “suffer or permit work.” (Workers at non-profits are governed by a different set of rules, as they can elect to “volunteer” their time). The Supreme Court has al- lowed an exception to the “suffer or permit” clause only in the case that an employer offers its workers the equiv- alent of a vocational course. This determination stems from Walling v. Portland Terminal Co., a 1947 case about the Portland Terminal Co.’s week-long program for prospec- tive railway brakemen.5    These unpaid trainees first ob- served routine rail yard activities and were later allowed to perform actual work under the close supervision of brakemen. Their presence did not “displace any of the regular employees” and may in fact have impeded busi- ness operations.
In declining to make the railroad pay its trainees, Justice Hugo Black observed that the definition “suffer or permit work” was “obviously not intended to stamp all persons as employees who…might work for their own advantag- es on the premises of another.” According to Black, had these trainees taken courses in railroading at a public or private vocational school, they certainly would not have been paid. Since on appeal it was unchallenged that the railroad received no “immediate advantage” from the train- ees, the Court decided that the program could not apply the FLSA’s “suffer or permit” clause.6
Black’s considerations in Wall- ing laid the foundation for the Wage and Hour Division’s (WHD) remarkably strict six-part test for differentiating an employee from an intern (a part of the Department of La- bor, the WHD is responsible for enforcing the FLSA):7
1) The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in a vocational school. 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 im- mediate advantage from the activities of the intern, and on occasion his/her operations may actually be impeded. 5) The intern is not necessarily entitled to a job at the conclu- sion of the internship.
6) The employer and intern understand that the intern is not entitled to wages for the time spent in internship.
An intern’s work, according to two of the criteria, can nei- ther “displace regular employees” nor provide the employer with an “immediate advantage.” If an internship fails any part of this test, an employment relation exists between the intern and the company under the FLSA, and the in- tern deserves compensation.8    Ultimately, the six-part test excuses an employer from his obligation to pay only in the rare case that he provides his intern with genuine vocation- al training.
A typical intern plays the important but unenlightening role of an administrative assistant. He manages phones, spreadsheets, copy machines, coffee-pots; he may be al- lowed to join “high-level meetings,” participate in more serious work, and observe internal operating procedures. But this familiar sounding internship would fail several parts of WHD’s test. Even if the intern manages phones, he frees up time for other employees to perform other work and provides his boss with an “immediate advan- tage,” likely displaces regular employees, and would be hard-pressed to find copy-making in any vocational school.9

Practical Applications and Consequences

Despite the WHD’s clear guidelines, the government and interns have tended to ignore these repeated viola- tions.10    Regulators point to the difficulty in conducting major enforcement efforts when interns are so reluctant to file complaints.11    Interns are hesitant to assert them- selves, since they want to avoid upsetting their super- visors and jeopardizing the benefits of their internship.12 Still, government agencies are beginning to pay more attention. Officials in Cali- fornia and Oregon recently investigated and fined employers for illegally taking on unpaid interns.13    Last year, the Department of Labor had a contentious exchange with several prominent uni- versity presidents about awarding academic credit for il- legitimate internships.14    Interns are also receiving more attention in the press. Ross Perlin’s recently published In- tern Nation surveys the thoughts of frustrated journalists, lawyers, labor economists, and former interns. If some of their suggestions are excessive – among them, Perlin’s call to end all menial entry-level labor – their funda- mental concerns reflect serious problems with the Intern Economy.
One particularly serious problem is that the practice of compensating interns with credentials increases socioeco- nomic inequalities. Between travel, housing, and food, a summer internship may cost upwards of several thousand dollars. Although some interns can manage with help from family members or generous universities, students with- out these resources are disadvantaged. When competing within the fierce job market, only those capable of absorb- ing the short-term losses and providing free labor can reap the long-term gains of having relevant experience on their resumes. In contrast, students who cannot afford a summer without pay must pursue jobs unrelated to their desired career path, which employers see as having less “relevant experience.” The Intern Economy thus likely exacerbates socioeconomic inequalities by making internships and the career paths they open inaccessible to underprivileged students.

Alternative Proposal: Relax the Six-Part Test Criteria

To cite the importance of paying for entry-level labor, however, is not to endorse the WHD’s current approach to distinguishing an intern from an employee. The six- part test largely ignores the importance of hands-on training to a vocational experience. Students in nearly every discipline simulate real work while in professional or vocational school. Practical training often teaches as much as any traditional course, and legitimate intern- ships might naturally include those very hands-on activi- ties that practical training in a professional school seeks to simulate. But the current standard of the six-part test neglects the positive impact of an opportunity to learn by doing. A student writing articles for a newspaper, for instance, could not participate in a lawful internship be- cause she would be providing her boss with an “immedi- ate advantage.”
As such a strict approach does not properly differenti- ate intern from employee, the WHD should relax its standards to account for a totality of circumstances. On the whole, an employee does more for his employer than the employer does for him: that’s why he is paid. In just the same way, an intern receives more than he gives – his primary activity is to learn and not to assist in regular business. For example, the newspaper intern may learn quite a bit from beats and other assignments. If this real work supplements a serious educational ex- perience, the internship is certainly consistent with the spirit of Walling and should be legitimately unpaid. If the intern contributes more to the paper than he learns in return, however, he deserves compensation under the FLSA.
Admittedly, deciding exactly how to quantify learn- ing and actual work becomes trickier. Professor David Yamada of the Suffolk University Law School suggests that the WHD compare hours spent performing “work that provides an economic benefit to the employer with the time spent in formal training programs.”15 The Economic Policy Institute takes the cost-benefit deter-
mination literally, proposing to compare the intern’s economic benefit to the employer with the cost interns would pay for a comparable training program.16    Both suggestions present difficulties. But even if this totali- ty-of-circumstances approach does not permit a more precise standard, it nevertheless captures the difference between an intern and an employee much more success- fully than does the current test. Even if “work” and “ac- tual learning” aren’t precisely defined, this standard at least admits that “work” can occur during a legitimate vocational experience.

1. See Ross Perlin, Intern Nation; David Yalmada, “The Employment Law Rights of Student Interns”; Steven Green- house, “The Unpaid Intern, Legal or Not.” 2. Tom Peter, “Unpaid interns struggle to make ends meet.” The Christian Science Monitor, March 5, 2007.
3. Ross Perlin, Intern Nation: How to Earn Nothing and Learn Little in the Brave New Economy (New York: Verso, 2011). 4. Steven Greenhouse, “The Unpaid Intern, Legal or Not.” The New York Times, April 2, 2010.
5. Walling v. Portland Terminal Co., 330 U.S. 148 (1947). 6. Ibid. 7. “Fact Sheet #71: Internship Programs Under the Fair La- bor Standards Act,” Wage and Hour Division, 2010.
8. U.S. Department of Labor. Wage and Hour Division. Internship Programs Under the Fair Labor Standards Act (Washington, DC, 2010). 9. David C. Yamada, “The Employment Law Rights of Stu- dent Interns.” Connecticut Law Review, 35: 232.
10. Ibid. 11. Steven Greenhouse, “The Unpaid Intern, Legal or Not.” The New York Times, April 2, 2010. 12. Students in other parts of the world have not been so timid. In April 2006, German interns organized anti-in- ternship demonstrations and collected 40,000 signatures calling for an end to unpaid internships. Later that year, the German Labor Minister publicly condemned internships. See: Tom Peter, “Unpaid interns struggle to make ends meet.” The Christian Science Monitor, March 5, 2007 13. Steven Greenhouse, “The Unpaid Intern, Legal or Not.” 14. Sara Lipka, “Leave Internships to Us, College Leaders Tell Feds.” The Chronicle of Higher Education, April 29, 2010. See also letter from college presidents to the Depart- ment of Labor, April 28, 2010. 15. David C. Yamada, “The Employment Law Rights of Stu- dent Interns.” Connecticut Law Review, 35: 235. 16. Kathyrn Anne Edwards and Alexander Hertel-Fernan- dez, “Not so Equal Protection.” Economic Policy Institute, Memorandum 160: 4. 17. Shoreline. “Youve reached the office of Mr. Copy Ma- chine” Jan. 21, 2008. Flickr Creative Commons. http:// www.flickr.com/photos/shoreliner/2210857064/sizes/l/ in/photostream/

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