To Pay Or Not To Pay: The Internship Conundrum

Monica Lewinsky.  Darren, from Seinfeld.  That strange, quiet kid in the cubicle next to you all summer whose name you do not know and whose purpose you’re really not sure of.  Interns, some famous, some infamous, some nameless, can potentially cause significant problems for an employer.  Given that it is almost intern season, employers should be mindful of some of the legal issues presented when they decide to hire an intern.

The initial issue faced by employers is whether the internship will be paid or unpaid.  As a general matter, under both state and federal law all individuals who perform work for a company are considered “employees” and must be paid at least minimum wage unless they fall within certain exceptions.  The exceptions include not only the independent contractor exception, which is the one most employers use and recognize but a specific exception for “unpaid interns.”  Accordingly, if an employer establishes an internship in accordance with specific requirements, it can be considered unpaid under the law.

While this sounds like a good idea for employers (FREE LABOR!) the hurdles an employer must overcome in order to establish an unpaid internship are significant.  As an initial matter, the primary beneficiary of the internship must be the intern.  This means that an employer cannot have an unpaid intern who merely answers phones, files documents, and gets the boss coffee.  Additionally, for the internship to be unpaid, it should be tied to a formal education program, the intern should not displace regular employees, there should be no guarantee of employment subsequent to the internship, and there should be an understanding (preferably in writing) with regard to compensation or the lack thereof.

In the event that an employer is able to meet all of the foregoing requirements, the internship can be unpaid.  Unfortunately for an employer, however, pay is not the only issue it will be presented with when hiring an intern for the summer.

As with all its other employees, paid interns are generally covered under both federal and state statutes which provide protections for individuals to be free from discrimination and harassment in the workplace.  Accordingly, an employer would be potentially liable for claims of harassment or discrimination brought by a paid intern which arose out of the internship.

Unpaid interns, however, were previously left out in the cold with regard to such protections.  In this regard, anti-discrimination statutes only protect “employees.”  Because unpaid interns are not generally considered employees under state or federal law, they have not traditionally been afforded any protections with respect to harassment and discrimination.

Notwithstanding the foregoing, several states have recently passed laws which provide protections to unpaid internships.  Pennsylvania, however, is not one of those states.  Nevertheless, this does not mean that employers are free to harass and discriminate against unpaid interns.  Courts have afforded unpaid interns protections under anti-discrimination statutes if they have received nonfinancial benefits that create or relate to career opportunities, such as free training and educational opportunities.  Given that most internships would provide free training or an educational opportunity, a Pennsylvania court may find that an unpaid intern is covered under the anti-discrimination statutes and, in turn, that an employer is subject to liability.

As such, whether an intern is paid or unpaid, employers must take all claims of harassment or discrimination seriously and conduct a thorough investigation.  A defense consisting of “I didn’t think they were protected, so I didn’t care” is unlikely to hold much weight with a court.

Finally, depending on the internship, an intern may be afforded access to an employer’s confidential or proprietary information.  Employers should not merely hope that an intern keeps such information a “secret” and does not discuss the information with his or her roommate over a game of beer pong.  Employers should take affirmative steps to protect any confidential or proprietary information which will be provided to an intern during the internship.

In this regard, employers should have interns execute non-disclosure agreements prior to the commencement of the internship.  The nondisclosure agreement will prohibit an intern from disclosing an organization’s confidential information to third parties both during the internship and after termination. Provided the nondisclosure agreement is not overbroad and is discussed with the intern prior to execution, a court will likely find such an agreement enforceable.

Employers are always tempted to hire interns during the summer.  Employers should be mindful that there is potential liability hiding around every “friend’s sister who needs an internship and says don’t worry, I’ll work for free.”  While not every internship ends in a Presidential impeachment, it can end it costly litigation for an employer.

Related Articles