A happy coincidence occurs during the summer months. It is the convergence of increased commercial demand for goods and services, business need for more workers, and augmentation of participating workers in the labor force supplied by students on summer vacation.
The commercial enterprise that requires additional help at this time must not turn a blind eye to the wage and hour laws in its quest to maximize profits. The same goes for government agencies and charitable organizations, feeling the pinch of sequestration or similar straitened circumstances, who offer little more to the student than a great experience and perhaps academic credit to boot. That is the other side of the classification issue.
"Classification" in the parlance of employment law usually refers to a bifurcated world comprised of either employees or independent contractors. Multiple tests have been developed by the state and federal courts, Internal Revenue Service, and Department of Labor to differentiate between the two. The stakes are high. Independent contractors are not protected by the minimum wage and overtime laws, they are not only excluded from workers' compensation coverage but may also have to obtain it for themselves, and the tax penalties in the case of misclassification may be quite onerous.
"Employment" has yet another frontier where the critical question is much more basic. When does work become employment? The pilgrims here are typically called "volunteers" or "interns." Their status goes to the very heart of the labor process as the sponsor of individuals so classified may expect them to work for free. An internship may provide a network and resume‑building opportunity or a chance to experience the ebb and flow of the day's work within a particular type of business or profession. On the other hand it may end up being a ploy to get a free worker. Nor is the prey for that sort of bait‑and‑switch limited to students. Mature members of the labor force, especially in these historic times, may feel compelled for any number of reasons to consider working for little or no remuneration.
Many sophisticated business people still operate under the misapprehension that the classification may be self‑actuating if the parties agree to it. Whether the issue arises under wage and hour, workers' compensation, or tax law, however, the last word is with the regulatory or adjudicative authority, which says in short, "I'll be the judge of that." Freedom of contract was an early casualty in the rise of labor and employment law.
Wage and hour laws have the lowest threshold of employment. The Fair Labor Standards Act (FLSA), which is the federal wage and hour law, broadly defines "employee" as "any individual employed by an employer." 29 U.S.C. § 203(e)(1). This law covers any association in which one party "suffers or permits" another person to work. An employment relationship may exist under wage and hour law that would not be deemed employment under common law rules.
Wage and hour laws being paternalistic, individuals do not waive their rights by accepting a particular designation nor are they estopped from making a claim after explicitly agreeing to work for nothing other than the experience or other gratification. In fact, they may not make a claim at all, the initiative for enforcement coming from the Department of Labor. According to the United States Supreme Court, the purpose of the FLSA requires its application "even to those who would decline its protections." Tony & Susan Alamo Foundation v. Secretary of Labor, 471 U.S 290, 302 (1985). The Department of Labor's Wage and Hour Division does shine some light in the right direction for employers or sponsors who venture into the thicket of these unpaid associations.
The FLSA itself does not have an exclusion from employee status for "interns." The recognized authority on the issue is the U.S. Department of Labor, Wage and Hour Division, Fact Sheet # 71, entitled, "Internship Programs under the Fair Labor Standards Act." It sets out the following six criteria for making the determination whether the individual is an employee who must be paid or an intern who may not be paid:
- The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- The employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
The factors listed above being met, an employment relationship does not exist under the FLSA, and the Act's minimum wage and overtime provisions do not apply to the intern. It is the exclusion from the definition of employment that is the key.
The more an internship program is structured around a classroom or academic experience as opposed to the employer's actual operations, the more likely the internship will be viewed as an extension of the individual's educational experience. This often occurs where a college or university exercises oversight over the internship program and provides educational credit. However, receiving academic credit does not ipso facto dispense with the six‑part test.
In the most favorable scenario the intern does not perform the routine work of the business and the business is not dependent on the work of the intern. Too much "productive work," such as filing, performing clerical work, or assisting customers, flows primarily to the benefit of the company. This work is less likely to be excluded from the FLSA's minimum wage and overtime requirements.
Interns used as substitutes for regular workers should be paid at least the minimum wage, as well as overtime compensation for hours worked over forty in a workweek. If the employer would have hired additional employees or required existing staff to work additional hours in the absence of interns, then the interns will be viewed as employees who are entitled to compensation under the FLSA. On the other hand, job shadowing opportunities that allow an intern to learn certain functions under the guidance of regular employees are more likely to be viewed as bona fide educational experiences.
In all cases, the internship should be of a fixed duration established prior to the outset. Unpaid internships generally should not be used by the employer as a trial period for individuals seeking employment at the conclusion of the internship period. The intern placed with the employer for a trial period who expects a job upon completion is generally considered an employee under the FLSA.
Best practice is to reduce the terms and conditions of the internship relationship to a memorandum signed by the intern and a company representative. It should acknowledge the unpaid nature of the program, describe the contemplated educational component, stipulate the fixed duration of the internship, and explicitly state that the internship is not a trial period for prospective employment. The intern should also disclaim coverage under the Workers' Compensation Act and participation in employee welfare benefit plans.
Document any and all information that has to do with the intern's coursework, instructor, competencies to be developed by the intern, and the strategies employed to achieve them. Closely monitor the intern throughout the course of the relationship to ensure that the benefit of the program inures to the intern. At completion, each intern might write a report confirming that the educational goals were accomplished.
Individuals may not "volunteer" to work for private sector, for-profit employers. Special exception from wage and hour requirements, however, may apply to individuals who volunteer to perform services for a state or local government agency, private non‑profit food banks, or religious, charitable, civic, or humanitarian organizations. Where the intern volunteers without expectation of compensation in those instances, unpaid internships in the public sector and for non‑profit charitable organizations are generally permissible.
Individuals who perform volunteer services in these circumstances will not be regarded as "employees." In order to prevent abuse of the minimum wage and overtime requirements the exception is narrow, however.
The FLSA does define "volunteer." It is an individual who performs hours of service for a public agency for civic, charitable or humanitarian reasons, without promise, expectation or receipt of compensation for services rendered. 29 C.F.R. § 553.101(a). Volunteer services must be offered freely and without pressure or coercion, direct or implied, from the employer. See 29 C.F.R. § 101.553.101(c). The individual cannot be a volunteer if otherwise employed by the same public agency to perform the same type of services as those which the individual performs as a volunteer. See 29 C.F.R. §§ 553.101(d); 553.102(a). For example, the hospital gift shop employee may volunteer to read to patients but not to work more hours in the gift shop.
The public agency may reimburse expenses and award reasonable benefits and nominal fees to a private individual who volunteers. See 29 C.F.R. § 553.104(a). Allowable expenses might include reasonable cleaning expenses or wear and tear on personal clothing worn while performing the volunteer service. Reimbursement for incidental out‑of-pocket expenditures such as payment for meals and transportation is also permissible. See 29 C.F.R. § 553.106(b). An individual may also be reimbursed for the cost of tuition, books, supplies, transportation and meals to attend classes to learn to perform the volunteer services they will provide. See 29 C.F.R. § 553.106(c).
Volunteer status is not lost if the individual is provided reasonable benefits such as inclusion in insurance coverage (such as liability and workers' compensation) or pension plans or awards traditionally made to volunteers. See 29 C.F.R. § 553.106(d). In addition, volunteer status is not lost if a nominal fee is paid. See C.F.R. § 553.106(e). Always the test will be based on the totality of facts and circumstances. Whether reimbursement of expenses or provision of benefits or fees will cause an individual to lose volunteer status depends on a review of the total amount of the payments made in the context of the economic realities of the situation. See 29 C.F.R. § 553.106(f).
Charitable entities may also utilize the help of volunteers outside FLSA coverage. In its publication entitled "Employment Relationship Under the Fair Labor Standards Act," WH Publication 1297 (revised 1980; reprinted 1985), at pp. 6‑7, the Department of Labor provides the following examples of volunteers in these circumstances as follows:
Members of civic organizations may help out in a sheltered workshop; women's organizations may send members or students into hospitals or nursing homes to provide certain personal services for the sick or the elderly; mothers may assist in a school library or cafeteria . . . to maintain effective services for their children; or fathers may drive a school bus to carry a football team or band on a trip. Similarly, individuals may volunteer to perform such tasks as driving vehicles or folding bandages for the Red Cross, working with retarded or handicapped children or disadvantaged youth, helping in youth programs as camp counselors, scoutmasters, den mothers, providing childcare assistance for needy working mothers, soliciting contributions or participating in benefit programs for such organizations and volunteering other services needed to carry out their charitable, educational or religious program. The fact that services are performed under such circumstances is not sufficient to create an employee‑employer relationship.
The case of Tony & Susan Alamo Foundation v. Sec. of Labor, 471 U.S. 290 (1985), is a cautionary-tale wrapped in a forewarning. The eponymous foundation was a non-profit religious organization that capitalized on the power of large numbers as applied to the "will work for food" imperative. The Foundation did not solicit contributions from the public but derived its income largely from the operation of commercial businesses, including service stations, retail clothing and grocery outlets, hog farms, roofing and electrical construction companies, a record-keeping company, a motel, and companies engaged in the production and distribution of candy. The Foundation's "associates" were recovering addicts and former derelicts and criminals who were converted and rehabilitated by the Foundation. They received no compensation other than food, clothing, shelter, and other benefits. One associate testified that the thought of working for material reward was "totally vexing" to her soul. 471 U.S. at 300-301. The Supreme Court in a unanimous opinion written by Justice White held that under the "economic reality" test the FLSA did apply to these associations, brushing aside the Foundation's arguments that adhering to the FLSA would violate the Free Exercise and Religious Entanglement clauses of the First Amendment. Id. at 302-303.
In conclusion, there are many reasons why people might choose to work for free or for some consideration other than specie. Whether they like it or not, the wage and hour law laws have the final say.
This post is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this post without obtaining the advice of an attorney. If you have questions concerning this post, please contact William Joseph Austin, Jr. at firstname.lastname@example.org.
© 2017 Ward and Smith, P.A. For further information regarding the issues described above, please contact