Proceedings of Eurasia Business Research Conference 4 - 6 June 2015, Nippon Hotel, Istanbul, Turkey, ISBN: 978-1-922069-77-1 The Legal Rights of Unpaid and Paid Interns: An Emerging Area of Employment Law Richard Trotter In recent years with a shortage of job for millennials many millennials in order to get job experience have accepted job as unpaid interns or paid interns with low wages. This paper explores the legal limbo of unpaid interns and paid interns. Unpaid interns are not legally considered” employees” because they do not receive compensation and therefore are not protected under Title V11 or The Fair Labor Standards Act (FLSA). Only New York City and three states have expanded the law to provide unpaid interns with protection against sexual harassment, thus this is an area where there is a serious gap in protection. The paper also explores situations where unpaid interns should be paid because they are performing work that would ordinarily be performed by regular employees but in fact they are not paid. With respect to paid interns issues have arisen with respect to under compensation. Additionally with respect to the status of unpaid and paid interns the paper also discusses the responsibility of institutions of higher learning in ensuring that interns are not being taken advantage by employers. Finally the paper examines the socio-economic barriers of less well-off students who cannot afford to work in an unpaid status, thus losing an opportunity to get their foot in the door of prestigious careers. Track-Management: Human Resource Management-Employment Law In recent years with a shortage of jobs for millennials corporations and other entities in both private and public sectors have in some cases have taken advantage of the job shortage by employing young people as low paid interns (pay even below the minimum wage) or in some cases hiring the young people as unpaid interns. These practices have raised significant concerns among various groups as to the potential for exploitation of young workers and potentially in the case of unpaid interns putting them in a legal limbo since as unpaid intern workers they do not have the legal status of employees and thus are not protected under the various anti-discrimination laws on both the federal and state level from discrimination and sexual harassment. The first question that arises is whether an employer has a legal duty to pay interns, even if the intern works in an unpaid status Before a for profit employer can hire an individual as an unpaid intern the employer must meet all the following standards set forth by the Department of Labor (DOL) in factsheet # 7 to determine if an individual can be classified and hired by an employer with the status of an unpaid intern: 1) The internship even though it includes the actual operation of the facilities of the employer is similar 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 the 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 ___________________________________________________ Dr. Richard Trotter, Associate Professor of Management, Department of Management and International Business-University of Baltimore, 1420 N. Charles Street, Baltimore, Maryland 21201 1-410-837-5063 (telephone), 1-410-837-5675 (fax), rtrotter@ubalt.edu Proceedings of Eurasia Business Research Conference 4 - 6 June 2015, Nippon Hotel, Istanbul, Turkey, ISBN: 978-1-922069-77-1 6) The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship. (1) If all six of the factors cited above exists the internship qualifies as an unpaid internship and as a result under the Fair Labor Standards Act (FLSA) and the various employment discrimination laws an employment relationship does not exist between the employer and the intern therefore the intern does not qualify for the protections afforded employees under federal state and local law including protection against employment discrimination or sexual harassment as well as protections afforded employees under the FLSA. In 2010 President Obama signed Executive Order 13562 which outlines codes for recruiting and hiring students and recent graduates within the federal government.(2)The standards set forth in fact sheet # 7 issued by the department of labor in 2010 are derived from the Supreme Court’s decision in Walling vs. Portland Terminal (3) decided in 1947. In that case the Supreme Court was asked to determine if the Portland Terminal Co. was required to pay workers in a training course for railroad yard brakemen. The workers had to complete this unpaid training course as a pre-requisite for being hired for a full-time job. In that case the court held that trainees did not have to be paid because the applicants did not displace any of the regular employees who were required to stand by to immediately supervise the trainees. What is also important respecting a worker’s status as an unpaid or paid intern is the rights they have or do not have as a result of having or not having an employee relationship with the employer. The absence of an employer-employee relationship with the employer which occurs when an individual has unpaid intern status results in the individual not having the legal protections that would usually be afforded an employee under the law. However, recent case law and statutory developments have altered the legal landscape to a limited degree regarding the legal protections afforded to unpaid interns. The Legal Rights of Unpaid Interns Expanded-Sexual Harassment and Compensation In 2013, a sexual harassment law suit was brought against Phoenix Satellite Television by an unpaid intern in the US, District Court for the Southern District of New York(4) alleging that she has been sexually harassed by her supervisor. The Syracuse University graduate an unpaid intern was sexually harassed after being lured in her supervisor’s hotel room on the pretext of discussing her performance and discussing a potential full-time position, but her unpaid status rendered her ineligible for protection under New York State law because she did not have the status of an employee. What is more unfortunate is that this was not the only case where a sexual harassment complaint was dismissed for lack of standing by the plaintiff. In the case of O’Connor vs. Davis (5) the plaintiff was required by the college she attended to do an internship at a local psychiatric center. Her supervisor Dr. James Davis sexually harassed her. Her suit was dismissed because she was unpaid and therefore not an employee protected under Title VII. The federal judge deciding the case found that the plaintiff did not have standing to sue because she was an unpaid intern and did not have the status as an employee which would be protected under Title VII or under New York state law. In response to the judge’s decision, the city council in New York City passed legislation granting unpaid interns coverage under the city's existing laws protecting "employees" from employment discrimination and sexual harassment.(6) Proceedings of Eurasia Business Research Conference 4 - 6 June 2015, Nippon Hotel, Istanbul, Turkey, ISBN: 978-1-922069-77-1 As a result of the newly enacted provisions of New York City's Human Rights Laws effective June 14, 2014 unpaid interns have the same legal protections as paid employees under the city's Human Rights law. As stated previously this amendment to New York City's Human Rights law was in response to the 2013 Federal Court decision which had dismissed an unpaid intern’s suit because she did not qualify for protection under New York State or New York City law because she did not have the status of an employee. New York City’s human rights law was extended to include interns on June 14, 2014 and includes the following terms: 1) An individual who performs work for employer on a temporary basis whose work: a) Provides training or supplements training given in educational environment such as the employability of the individual performing the work maybe enhanced b) Provide experience for the benefit of the individual performing the work, and c) Is performed under the close supervision of existing staff. The term includes individuals without regard whether the employer pays them a salary or a wage. (7) Following the action of the City Council of New York City, Governor Cuomo of New York State on July 22, 2014 signed into law an amendment to New York State’s Human Rights law with a section 296 entitled "Unlawful Discriminatory Practices Relating to Interns The amendment prohibits employer from: 1) Refusing to hire, employing, discharging from an internship, or discriminating against an intern because of the intern's age, race, creed, color, national origin, sexual orientation, military status, sex, disability, predisposing genetic characteristics, marital status, sex, disability, marital status, or domestic violence victim status ("protected characteristics"). 2) Discriminating against any intern in receiving, classifying, or otherwise acting on applications for internships; 3) Printing or circulating any statement, advertisement, or publication; using any application; or making any inquiry in connection with prospective employment that expresses any limitation, specification, or discrimination related to any protected characteristic unless based on a bona fide occupational qualification; 4) Retaliating against any intern because he or she has opposed a practice forbidden by the State Human Rights Law or because the intern filed a complaint, testified, or assisted in any proceedings under the Human Rights Law; 5) Compelling an intern who is pregnant to take a leave of absence unless the intern is prevented by such pregnancy from performing the activities involved in the job in a reasonable manner; and 6) Harassing interns on the basis of protected characteristics. The law defines an intern as an individual who performs work for an employer for the purpose of training where: A. The employer is not committed to hiring the individual performing the work at the conclusion of the training period. B. The employer and the individual agree that the individual is not entitled to wages for the work performed, and C. The work performed: a) provides or supplements training that may enhance the employability of the individual, b) provides experience for the benefit of the individual performing the work, c) does not displace regular employees, and d) is performed under the close supervision of existing staff.(8) Proceedings of Eurasia Business Research Conference 4 - 6 June 2015, Nippon Hotel, Istanbul, Turkey, ISBN: 978-1-922069-77-1 On June 14, 2014, similar legislation took effect in New York City, extending the protections of the New York City Human Rights Law to paid and unpaid interns who work in New York City. Unpaid Interns Performing Work for Which They Should Receive Wages and Other Benefits The legal status of unpaid interns under New York State and New York City legislation has been enlarged with respect to being protected from illegal employment discrimination and sexual harassment. Since the right to receive a wage cannot be waived if an individual is performing work for which compensation should be received, the issue has arisen in several cases whether employers have improperly classified individuals as coming within the ambit of unpaid intern status when in fact they are performing work that normally would be done by regular employees and thus under the law should receive compensation. Several cases have been decided on the question of compensating individuals hired as unpaid interns. In Eric Glatt, etalv. Fox Searchlight Pictures Inc. (9) the plaintiffs filed a class action suit contending that Searchlight and FEG violated Federal and state law by classifying them as unpaid interns instead of paid employees. The plaintiffs asserted that they were "employees" covered by the FLSA and New York Labor Law (NYLL) and that Searchlight Pictures was their employer. On June 14, 2013 United States District Court judge William H. Pauley found that Fox-Searchlight Pictures had improperly classified its interns as "unpaid" when in fact they were performing the work of employees. In finding for the plaintiffs Judge Pauley addressed the following questions. 1) Did Fox pictures give the plaintiffs training similar to an educational environment? (10) Judge Pauley found that one of the plaintiffs did not receive any formal training or education during his internship. He did not acquire any new skills aside from those specific to Black Swan’s back office such as how it watermarked scripts or how the photocopier or coffeemaker operated. 2) Whether the internship is for the benefit of the intern? (11) Undoubtedly, Glatt and Footman received some benefits from their internships such as resume listings, job references and an understanding of how a production office works. On the other hand Searchlight received the benefits of their unpaid work, which otherwise would have required paid employees. 3) Whether plaintiffs displaced regular employees? Glatt and Footman performed routine tasks that would have otherwise been performed by regular employees. (12) 4) Whether Searchlight obtained immediate advantage from plaintiffs work? (13) Searchlight does not dispute that it obtained an immediate advantage from Glatt and Footman's work. They performed tasks that would require paid employees. There is no evidence they ever impeded work at their internships. Menial as it was their work was essential. 5) Whether plaintiffs were entitled to a job at the end of their internship? (14) There is no evidence that Glatt or Footman were entitled to a job at the end of their internship or thought they would be. 6) Whether Searchlight and the plaintiffs thought they were not entitled to a wage? Proceedings of Eurasia Business Research Conference 4 - 6 June 2015, Nippon Hotel, Istanbul, Turkey, ISBN: 978-1-922069-77-1 Glatt and Footman understood they would not be paid. But this fact adds little because FLSA does not allow employees to waive their entitlement to wages (15) While the decision is Fox Searchlight pictures was in favor of the plaintiffs, another decision on the subject by another Federal court with a similar set of facts was decided in favor of the employer using a less strict interpretation of the Department of Labor( DOL)test. In Wang v Hearst Corp (16) the court used a” totality of circumstances “standard and found that the interns were not entitled to wages. This was in contrast to the Fox case, where the judge looked exclusively to the six factor test contained in the Department of Labor Fact Sheet #71 Still, to be resolved by the Second Circuit is whether an intern is an employee entitled FLSA protection and whether interns are entitled to class and collective action certification. In addition to the above, the U.S. Courts of Appeals are divided as to whether an employer must satisfy all six tests to avoid an employment relationship with an intern or trainee or may fail in one or more points if the totality of circumstances establishes that the intern is not an employee. (17) Current Legal Environment for Unpaid Interns The protection afforded unpaid interns from sexual harassment or other forms of discrimination or other employment discrimination laws under Title VII is either nonexistent or limited .An individual who is an unpaid intern is not considered an employee within the meaning of Title VII and thus has no protection under Title V11.(18)At present unpaid interns have protection against discrimination and other Title VII protected the rights only in the states of New York, Oregon, Washington and Illinois and in New York City. In Masri v Wisconsin Labor and Industry Review Commission (18) an unpaid intern was told to diagnose a patient as having "borderline" personality to protect the hospital from a potential malpractice suit, but the court found that Wisconsin’s whistleblower statute applies only to “employees” and thus did not apply to the unpaid intern who brought suit. The other issue that has been presented to the courts beyond whether interns are protected under Title VII type protections is whether in fact employers have improperly classified individuals as falling under the DOL's standard of unpaid internship status when in fact the intern is performing work of value to the employer that displaces people who would be regular employees and thus is entitled to compensation under the law. Socioeconomic Implications of Unpaid Internships David C. Yamada (19), Jessica Curiale (20) and others have identified an important and unfortunate byproduct of unpaid internships that go beyond the issue of pay and the interns right to receive pay and their lack of protection under Title VII and other employment discrimination laws. In addition to the above the prevalence of unpaid interns exacerbates the already significant problem income inequality by creating further barriers of social mobility. Jessica L. Curiale has described the problem in the following terms: For with the benefit of unpaid internships come a myriad of broad and serious societal problems. While interns who can afford and are willing to work for free gain valuable experience and make lucrative connections. Those who do not have the luxury of accepting an unpaid position find it harder and harder to advance in society. Proceedings of Eurasia Business Research Conference 4 - 6 June 2015, Nippon Hotel, Istanbul, Turkey, ISBN: 978-1-922069-77-1 As internships become increasingly common employers come to expect internship experience on a resume because, resume boosting" internships do not pay students who do not come from money and do not have any independent source of money or funding, and often cannot afford to have them. If these students do find a way to accept an unpaid position it often means spending the rest of their days working part-time paying jobs, taking out additional loans, or even skipping meals. This creates a distinct class divide between students who can afford to take unpaid internships and those who cannot and renders social mobility and employment opportunity even more difficult to obtain. For those who cannot afford an unpaid internship are increasingly unlikely to find a paid one: individuals who can afford to forgo a paycheck agree to work for free, thus employers have little incentive to pay interns. Indeed this is exactly why we have regulations at all, without it, wages would be driven down. (21) Legal Issues Concerning Paid interns Kathryn Anne Edwards and Alexander Hertel-Fernznadez in the article Not so Equal Protection-Reforming the Regulation of Student internships have observed: Despite internships' importance to the labor market as a crucial form of vocational training and pre-employment vetting, they are only loosely regulated through vague and outdated employment laws. Moreover, these regulations go essentially unenforced. As this paper demonstrates, a lack of clear regulation and enforcement of internship related laws: 1) Leaves many interns unprotected by workforce discrimination and harassment statutes such as the Civil Rights Act, Americans with Disability Act, ant the Age Discrimination in Employment Act. 2) Fosters the growth of unpaid internships, which internship limits participation only to students who can afford to forgo wages and pay for living expenses, effectively institutionalizing socioeconomic disparities. 3) Permits and even incentivizes the replacement of regular workers with unpaid college students and recent graduates. Paid interns are protected under Title VII and other discrimination law. (22) Status of Paid Interns Protected Under Title VII and Other Discrimination Laws Paid interns are protected under Title VII and other discrimination laws because by receiving compensation they are considered “employees” under the law. More significant issues respecting paid interns arise out of the Fair Labor Standards Act issues and under Department of Labor Wage and Hour Division (WHD) regulations. Jessica Curiale in her article America’s New Glass Ceiling: Unpaid Interns,The Fair Labor Standards Act and the Urgent Need for Change has asserted that the current “learner” exception which allows employers to pay “learners” 95% of the minimum wage does not provide adequate protection to interns, so employers may end up paying interns even less than 95% of the minimum wage. (23) Another problem with the FLSA regulations and the DOL regulations is that they are inadequately enforced with respect to internships, so that in reality while these interns are entitled to overtime they may in fact not receive it if the employer knows enforcement is lax and takes advantage of this situation. Proceedings of Eurasia Business Research Conference 4 - 6 June 2015, Nippon Hotel, Istanbul, Turkey, ISBN: 978-1-922069-77-1 The Responsibilities of Institutions of Higher Education to Protect Interns and the Relationship between Higher Education and Employers Respecting Interns The National Association of Colleges and Employers (NACE) has issued a position statement on unpaid internships that includes a definition of what the term internship means and the specific criteria to be used to define an internship. In their position statement they define an internship in the following terms: An internship is a form of experiential learning that integrates knowledge and theory learned in the classroom with practical applications and skills development in a professional setting. Internships give students the opportunity to gain valuable applied experience and make connections in professional fields they are considering for career paths and give the employers the opportunity to guide and evaluate talent. (24) The position statement explains the relationship between the granting of academic credit and an internship in the following terms: While academic credit legitimizes an unpaid experience, in order to be identified as an internship that experience must fit the criteria for experiences that employers make available only if academic credit is awarded, the college or university’s requirements in combination with the criteria laid out in this paper should be used to determine if the experience is a legitimate internship. (25) The criteria for an experience to be defined as an internship include the following: 1. The experience must be an extension of the classroom; a learning experience that provides for applying the knowledge gained in the classroom. It must not be simply to advance the operations of the employer or be the work that a regular employee would routinely perform 2. The skills or knowledge must be transferable to other employment settings. 3. The experience has a defined beginning and end and a job description with desired qualifications 4. There are clearly defined learning objectives, goals related to the professional goals of the student’s academic course work. 5. There is supervision by a professional with expertise and educational and/or professional background in the field of experience. 6. There is routine feedback by the experienced supervisor. 7. There are resources, equipment ,and facilities provided by the host employer that support learning objectives(goals).(26) Notwithstanding the issuance of these standards by the (NACE) there have been abuses respecting internships emanating not only from employers but also by colleges and universities since unpaid internships can provide a low cost service to students with substantial tuition revenue for the schools. Ross Perlin in his book Intern Nation (27) has observed: Colleges and universities have allowed the academic credit myth to spread in part because these credits, closely linked to tuition now form significant revenue streams at many institutions. (28) Employers often as a way to justify the unpaid status of the interns require that unpaid interns obtain college credit, so in effect the intern not only works for free but pays to work. (29). Cynthia Bowman and Mary Beth Lipp have explored another issue concerning student internships. In their article Legal Limbo of the Student Intern: The Responsibility of Colleges and Universities to Protect Student Interns From Sexual Harassment. (30).As set forth previously very little protection is afforded interns who Proceedings of Eurasia Business Research Conference 4 - 6 June 2015, Nippon Hotel, Istanbul, Turkey, ISBN: 978-1-922069-77-1 are sexually harassed. Prof Bowman has focused on another aspect of this issue in the following terms: Although Title VII and Title IX have effectively aided the fight against sexual harassment in workplaces and schools student interns appear to fall somewhere in between the scope of these two statutes. Though they contribute to a work environment, interns typically receive no pay from an employer. Thus, Title VII will not protect them from employment based sex discrimination. At the same time, while students may earn credit and pay tuition during the internship courts have not yet interpreted Title VII to apply in an off campus setting.(31) In addition to the above Professor Bowman observes that many college and university guidelines for resolving sexual harassment complaints do not cover student interns, thus leaving the interns without institutional recourse to remedy the situation and also create potential legal liability for the academic institution .Professor Bowman has also observed that: Because Title VII clearly can be interpreted to apply to student interns completing off campus programming as part of their degree requirements, administrators must consider their economic and legal exposure if colleges and universities s continue to ignore the existence of this problem and thus effectively exclude student interns from their sexual harassment policies and procedures, they risk costly and damaging lawsuits or administrative enforcement actions. (32) Conclusions and Observations Millions of young people in the workforce lack the legal protections offered other workers because of the practice of “unpaid internships” which render these individuals virtually without legal protection in the workplace because they are in a legal limbo in they are workers and yet are not considered workers because they do not have the legal status of “employee”. Even young people who have paid internships are often taken advantage of because of lax enforcement of worker protections under the FLSA (minimum wage, overtime).Additionally the use of unpaid or underpaid internships results in the replacement of regular workers by interns which causes a downward spiral in wages. Barriers to social mobility are also increased because of the prevalence on unpaid internships. The legal protection that exist for unpaid internships is extremely limited and even what protection exists when an “unpaid” intern asserts that they are in fact employees is also open to question because the US Courts of Appeals are divided as to whether an employer must satisfy all six tests to avoid an employment relationship with an intern or trainee, or may fail on one or more of the tests if the “totality of circumstances” test establishes that the intern in fact is not an employee (33). Kathryn Edwards and Alexander-Hertel Fernandez have suggested a number of proposed reforms which seek to address the gap between the growing use of interns in the workforce and the absence of corresponding protective legislation to address this issue. Specifically the authors propose the following reforms: 1. Adapt a new regulatory test for determining whether or not interns must be compensated by examining the per-hour cost and per-hour benefit to an employer of having an intern. If the per hour benefit to the employer exceeds the per hour cost, then the intern is an FLSA covered employee and must be compensated accordingly. Exceptions would be granted for internships that failed this test but are Proceedings of Eurasia Business Research Conference 4 - 6 June 2015, Nippon Hotel, Istanbul, Turkey, ISBN: 978-1-922069-77-1 of an explicitly educational nature and involve close coordination between the employer and an institution of higher education. 2. Apply the new regulatory test to both non-profit and for profit firms. 3. Engage in more aggressive enforcement of the FLSA about internships. 4. Engage in a public awareness campaign on the rights of student workers. Work closely with employers, with interns and college campuses (particularly career service officers). 5. Include questions regarding internships on the Current Population Survey and other demographic and economic surveys administered by the federal government. Congressional Action (1) Include legislation that extends coverage of relevant workplace discrimination and harassment legislation (such as the Equal Pay Act, Civil Rights Act, Americans With Disabilities Act to interns by changing the definition of an employee to include interns who perform work for an employer. (2) Pass legislation that creates a system of financial supports for low income students who pursue public service internships in government agencies and non-profit organizations. As the discussion above reveals at present many young people are now in a work environment where fundamental protections against sexual harassment, others forms of discrimination are not available to them because they lack the legal status of employees as unpaid interns. Those interns who are paid also are not adequately protected under the FLSA and are subject to being paid below the minimum wage. It is clear that the legal protection offered interns is at present very limited. End Notes (1) US Department of Labor Wage and hour Division-Fact Sheet #71-Internship Programs Under the Fair Labor Standards Act(April 2010) (2) Executive Order 13562 US 976 Fed Supp. 2d,527(SDNY) (3) Walling v Portland Terminal Co 148,150(1947) (4) Wang v Phoenix Satellite US 976 Fed.Supp.2d,527(SDNY (5) O’Connor v Davis 126 F3d 112,119(2d Cir 1997) (6) New City Human Rights Law –Subdivision (Section 8-102) 2014 (7) Ibid. (8) Section 296(c) New York Human Rights Law –Unlawful Discriminatory Practices Relating to interns-July 22,2014 (9) Glatt v Fox Searchlight Pictures ,293,FRD 516 (SDNY) 2013 (10) Ibid at 23 (11) Ibid at 24 (12) Idem (13) Ibid at 25 (14) Idem (15) Ibid at 26 (16) Wang v Hearst 293 FRD 489 (SDNY 2013 (17) Kathryn Anne Edwards and Alexander Hertel Fernandez ”Not so Equal Protection-Reforming the Regulation of Student Internships-Report Education 2010 http://www.epi..org/publication/pm1601 (18) Marsi v Wisconsin Labor and Industry Review Commission Wis.No 2012 Ap001047,7/22/14 Proceedings of Eurasia Business Research Conference 4 - 6 June 2015, Nippon Hotel, Istanbul, Turkey, ISBN: 978-1-922069-77-1 (19) David C Yamada, The Employment Rights of Student Interns, Connecticut Law review ,2002 ppVol.35;214-257 (20) Jessica L Curiale, America’s New Glass Ceiling, Unpaid internships, the Fair Labor Standards Act and the Urgent need for Change, Hastings LJ 1531(2009-(2010) (21) 1536 (22) Ibid at note 17p1 (23) Ibid at note 20p1536 (24) Position Statement: US Internships: A Definition of Criteria to Assess Opportunities and Determine the implications for Compensation http //www.naceweb.org/advocacy/position-statements/United –States-InternshipsInternships.aspxp.2 (25) Idem (26) Idem (27) Ross Perlin , The Intern Nation, Verso, London-New York 2012 (28) Ibid p85 (29) Idem (30) Cynthia Bowman, Legal Limbo of the Student Interns: The Responsibility of Colleges and Universities to Protect Student Interns Against Sexual Harassment23 Harvard Women’s Law Journal 95 (31) Ibid at 96 (32) Ibid at 131 (33) Ibid at note 17p.3