Should You Revisit Your Unpaid Internship Program?

by QuickBooks

2 min read

Just in time for summer, a federal court ruling in Manhattan should remind small-business owners to tread carefully when using unpaid interns.

In mid-June, the U.S. District Court for the Southern District of New York ruled [PDF] that Fox Searchlight Pictures violated state and federal labor laws when it did not pay interns who worked during the filming and production of Black Swan.

The court ruled that the interns did mostly menial tasks that paid employees could have done and received little in return for their efforts. This gave the company an “immediate advantage.”

“The benefits they [the interns] may have received — such as knowledge of how a production or accounting office functions or references for future jobs — are the results of simply having worked as any other employee works, not of internships designed to be uniquely educational to the interns and of little utility to the employer,” wrote U.S. District Judge William H. Pauley III.

According to attorneys who have closely followed this case, the only benefit small-business owners should receive from unpaid internships is altruism.

“A true internship is going to be some work for the small-business owner. It’s a teaching experience: You have to take some time out of your schedule to teach, mentor, and closely supervise this individual,” says Elizabeth Milito, senior executive counsel for the National Federation of Independent Business. “It’s not meant to be a way to get cheap labor.”

Pauley largely based his decision on the six criteria developed by U.S. Department of Labor to govern the setup between employers and interns. To comply with these rules, unpaid internships must, among other things, include the kind of training that would occur in an educational setting, benefit the intern, and not displace a current employee.

Are You in Compliance?

For small-business owners contemplating whether to enlist interns, the key takeaway from this case is “benefits.” This means the interns walk away not only with a strong reference and a new line on their resumes, but also real experience. “The company needs to look at itself as an extension of a college,” says Barbara Lee, counsel at Edwards Wildman Palmer. “The company should be doing it for charitable purposes, not to help the business.”

The easiest way to make sure your intern program is in compliance is to pay your interns in accordance with minimum wage laws. Another is to work with the interns’ schools to set up a program that ensures they will receive academic credit for their time with your business. They may need to write a paper, and you may need to fill out some paperwork and meet other requirements.

As for the work itself, consider setting them up with special projects. For example, have them work with other staffers to develop an employee handbook or closely shadow an employee who is scouting a new location for your business.

“Look at what you are asking this person to do day to day,” suggests Nancy Barnes, a partner at Thompson Hine.

The interns in the Fox Searchlight case claimed they were relegated to taking out trash, answering phones, and making travel plans for others. If the only tasks your interns handle would be fit for a secretary, you should be paying them or rethinking your intern program altogether.

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