Wednesday, May 14th, 2014

Internship Programs: Paid or Unpaid?

The summer is soon approaching and soon, if not already, college and high school students will hit the pavement and come knocking for interviews and jobs while they are off school.  Their goal:  to make some money or, at a minimum, to pad their resumes.

While internships are a good source of cheap or free labor, local governments have to proceed carefully when making these hiring decisions.  Assuming that a local government’s budget does provide for summer help, and that some funds can be earmarked for internships that pay minimum wage, there should be no issue with the selection and retention of summer employees.  In the case of unpaid internships, there are some issues to consider.

The Department of Labor Wage and Hour Division (WHD) oversees whether or not employers are in compliance with Federal Labor Standards Act (FLSA) requirements for unpaid interns.  The WHD has developed six criteria which include the following:

  • Is the internship similar to training that would be offered in an educational environment?
  • Is the internship experience for the benefit of the intern?
  • Is the intern displacing a regular employee?
  • Does training provided by the employer to the intern impede employer’s operations?
  • Is it clear that the intern is not expecting a permanent position at the conclusion of the internship?
  • Do the employer and intern understand there is no compensation?

Fortunately for local governments, the FLSA makes a special exception for individuals who volunteer to perform services.  Accordingly, unpaid internships in the public sector where the intern volunteers without expectation of compensation are generally permissible.  However, there are limits.

When the work performed is for the benefit of a “commercial operation” or “enterprise” operated by the local government or charitable organization, a legitimate question arises as to whether the exception applies.  This approach arises out of a Supreme Court case where a not-for-profit organization, the Alamo Foundation in California, derived a large part of its income from the operation of a business staffed by “associates.” The associates were individuals who were not paid compensation and rather received food, clothing, shelter and other benefits and the foundation disputed that they were employees. The organization business was found to be an “enterprise” because the work being performed served a common business purpose, served the general public and competed with other commercial enterprises in the area.  As a result, the volunteers were deemed employees.

By way of illustration in the local government context, if a municipality parks department or a park district brings in students who are engaged in a course of study leading to a profession in the health and fitness field to be lifeguards or physical trainers, the activity is more likely to be deemed an “enterprise” and such individuals should be paid.  A public pool or fitness center would likely be considered an enterprise because it is (1) operated as a business, (2) does serve the general public, and (3) does compete with private sector providers such as Lifetime Fitness (and Centegra Healthbridge in McHenry County).

On the other hand, if a township brought an intern to assist the food pantry coordinator with its service operation, and the intern’s purpose would be to sharpen her organization and managerial skills, the non-business, charitable purpose of the food pantry will most certainly override the concept of a commercial purpose or enterprise and the intern may properly be deemed a volunteer or unpaid intern.

Another area inviting scrutiny despite the exception is where there is a displacement of employees as a result of bringing in unpaid interns or volunteers.  The WHD will maintain that if work force numbers are reduced or could be increased depending on seasonal needs, replacing or supplementing workers with unpaid interns will result in these interns being deemed employees and having to be paid a wage.  Clearly, if the work force at issue is part of a union, the employing entity will need to worry about a grievance and associated remedies to union members for lost opportunities and overtime.

Specifically, the WHD has opined in the past that students at a community college who are enrolled in a fire protection technology course of study and who intern with a local fire department, but who do not displace regular employees and are not promised a job at the end of the internship were deemed trainees and not employees.  As a result, they could be unpaid interns.

As a final point, it should be taken into account that whether an individual is properly classified as an “unpaid intern” or volunteer depends on the totality of the circumstances surrounding the relationship between the person providing services and the entity receiving those services.  It has never been Congress’ intent to discourage volunteerism or to prevent willing individuals from pursuing and attaining skills and training in their chosen careers by spending time serving as unpaid interns.

Bottom line, while an exception is recognized for those performing service for local governments without compensation, the administration must be thoughtful in the creation and implementation of volunteer or unpaid internship opportunities.

Arévalo Appointed Secretary of ISBA’s Labor & Employment Law Section Council

Carlos Arévalo, featured in this edition of the Local Government Law Bulletin, has been appointed as Secretary of the Labor & Employment Law Section Council of the Illinois State Bar Association.  The Section’s mission is to keep its members and the public informed of important developments in labor and employment law, to review and comment on proposed legislation, to foster informal contacts between attorneys representing management and labor interests and to foster improvement in the administration of federal and state labor legislation.

Carlos has been an active member of the Labor & Employment Section Council since 2010 after completing his term as Chair of the Local Government Law Section Council.


Carlos S. Arevalo

Author: Carlos S. Arévalo