As summer is now in full swing and students have joined the professional workforce, employers must be sure to familiarize themselves with the law pertaining to unpaid internships. Amid a continuing wave of lawsuits initiated by unpaid interns against their former employers, companies must pay particular attention to the Fair Labor Standards Act (FLSA), in addition to state and local laws, which may view unpaid interns as “employees”—having a non-waivable right to be paid at least the minimum wage and overtime wages for work performed in excess of 40 hours per week.

Federal Law

Because the FLSA defines the term “employ” very broadly, the U.S. Department of Labor (DOL) utilizes a broad definition of “employees.” DOL Fact Sheet #71 provides some guidance on how to structure an internship so that it fits within a narrow exception to the FLSA employee wage requirement. According to the Fact Sheet, there are six criteria that must be met in order to show the absence of an employment relationship:

1. 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;
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 immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

This means that in order to hire unpaid interns, you must meet all six of the above factors to remain in compliance with federal law.

New Jersey Employers

Employers in New Jersey must be sure to comply with both the federal and state law regulating internships. In addition to satisfying the U.S. DOL criteria above, employers in New Jersey must meet the following nine additional requirements:

1. The training is for the primary benefit of the trainee;
2. The employment for which the trainee is training requires some cognizable trainable skill;
3. The training is not specific to the employer, that is, it is not exclusive to its needs, but may be applicable elsewhere for another employer or in another field of endeavor;
4. The training, even though it includes actual operation at the facilities of the employer, is similar to that which may be given in a vocational school;
5. The trainee does not displace an existing employee on a regular job nor supplement a regular job, but trains under close tutorial observation;
6. The employer derives no immediate benefit from the efforts of the trainee and, indeed, on occasion may find his or her regular operation impeded by the trainee;
7. The trainee is not necessarily entitled to a job at the completion of training;
8. The training program is sponsored by the employer, is outside regular work hours, the employee does no productive work while attending and the program is not directly related to the employee's present job (as distinguished from learning another job or additional skill); and
9. The employer and the trainee share a basic understanding that regular employment wages are not due for the time spent in training, provided that the trainee does not perform any productive work.

See N.J.A.C. 12:56-2.1.