Employers Beware: “Interns” ≠ Free Labor

by Jason Femrite & Micah Parzen

Every company facing flat or falling revenues looks for ways to cut expenses. While fixed costs are typically exactly that, labor is often viewed as a more expedient avenue for decreasing expenditures and increasing the bottom-line. Toward that end, companies are taking a variety of steps to curtail their employment-related costs. While many action sports companies are laying off workers, reducing working hours, and/or decreasing wages, others have turned to (or ramped up) a favorite industry staple – the unpaid intern. Employers should beware, however - if not carefully structured, an internship can be anything but free.

In fact, both federal and state law prohibit an employer from classifying a worker as an unpaid “intern” unless several requirements are met. Under California law, for example, there are eleven such requirements, all of which must be satisfied for proper classification. Most significantly, California has a “do not pass go” test, which requires that the intern’s training be an essential part of an established course of an accredited school or institution approved by a public agency to qualify for a skilled profession. In addition, the school or institution must supervise the intern.

Even if an intern receives academic or vocational credit, it does not guarantee that the classification is proper. Among other requirements, California law mandates that the internship may not be for the benefit of the hiring employer, but rather must prepare the intern to work in the industry in general. In fact, since the internship must primarily benefit the intern rather than the employer, the internship should even impede the employer’s operations at times – something most action sports companies may find surprising. To further complicate matters, an intern may not displace a regular employee or even an applicant. Consequently, a company may not simply hire an intern to fill a labor need.

Failure to properly classify an intern creates significant liability for an employer. Specifically, an improperly classified “intern” may be entitled to recover damages for the employer’s failure to pay minimum wage, failure to pay for all hours worked, and failure to pay overtime. Moreover, under California law, an improperly classified “intern” could also recover damages for missed meal and rest periods, various penalties, and even attorneys’ fees. If an entire internship program is deemed unlawful, it may even expose the employer to class action liability. To make matters worse, although the “intern” may file a civil lawsuit against the employer, he or she is not required to do so. A simple trip to the Division of Labor Standards Enforcement’s Web site to download a claim form is all that is required.

While improperly classified “interns” may be hesitant to file a claim against an employer based on their fear of being denied a subsequent job opportunity or being “black-listed” in the action sports industry, given the significant liability at stake, every company in the industry should consult with competent legal counsel to ensure that anyone categorized as an “intern” – and, thus, not treated as an employee – is properly classified as such.

Internships can be a great opportunity for parties on both sides of the coin, but make sure you do your homework or “free” can quickly turn into some serious cash.

Jason A. Femrite and Micah D. Parzen are members of the Action Sports Group at Luce Forward Hamilton & Scripps LLP, of which Mr. Femrite also acts as Chair. For more information, please visit www.luce.com/actionsports. Please note this article has been prepared for informational purposes only and is not to be considered legal advice. You are advised to speak directly with counsel regarding the matters discussed above.