Is Your Nonprofit Risking a Lawsuit by Misusing Unpaid Interns?

| November 16, 2011

Stop me if you’ve heard this in your nonprofit recently:  “We need help with (insert job or project name of choice), let’s get an unpaid intern.”

Not so fast. What you are describing is probably illegal. The primary rule of internships is that they cannot benefit the company or organization in any way (see #4 below). Internships are training programs that exist entirely for the benefit of the intern and thereby create an exception to labor law. If an intern is doing real work that benefits the organization, then they may be considered an employee under the Department of Labor’s rules, and your organization could find itself liable for back wages and overtime.

There is widespread abuse of unpaid internships with little fear of repercussion, mostly because interns, for fear of not getting a job or just not knowing the law, rarely make a fuss. But 2 former interns recently filed a class action law suit that is getting a lot of media, the first in many years, and so the spotlight is on the issue (See also The Unpaid Intern, Legal or Not). In the current case, the interns felt that they had invested a great deal of time as interns, expecting to learn aspects of the business that would help them initiate careers in the industry. When they were used for menial tasks that made them feel they had wasted their time — they filed suit.

The Department of Labor has published the following guidelines, all of which must be met in order to determine that an intern does not create an employment relationship:

  1. The training is similar to what would be given in a vocational school or academic educational instruction;
  2. The training is for the benefit of the trainees or students;
  3. The trainees or students do not displace regular employees, but work under their close observation;
  4. The employer that provides the training derives no immediate advantage from the activities of the trainees or students, and on occasion the employer’s operations may actually be impeded;
  5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and
  6. The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

The DOL factsheet goes on to say, “In general, 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…”

If your intern program fails to meet all of these requirements, then you may have a problem and a hidden liability. In California (California’s Private Attorney General Act), the intern(s) doesn’t even have to be the one filing a complaint. Anyone in the company, say someone who feels that an organization is taking advantage of free labor instead of hiring real employees, may file suit.

Nonprofits have another option – volunteer interns. Which brings us to the question of what exactly is a volunteer under labor law? The Fair Labor Standards Act  (FLSA) defines volunteers as individuals who provide services without any expectation of compensation and without coercion or intimidation to religious, civic, charitable, or humanitarian nonprofit organizations. This is a bit murkier, since “compensation” has a rather broad definition. Are free meals, college credits, or stipends compensation? Not necessarily. Generally activities are considered to be ordinary volunteerism if they are typical of normal volunteer service, less than full time, and do not displace regular employees. But remember, the primary purpose of an internship is to provide valuable training, regardless of volunteer status.

It’s important to note that even if your volunteers don’t want to be paid, and consider themselves volunteers, that they can be construed to be employees if they work in a commercial aspect of your nonprofit. For instance, the court found that workers in commercial activities of a religious nonprofit were employees under the law, even though they objected to that classification and considered themselves to be volunteers (ALAMO FOUND’N V. SECY. OF LABOR, 471 U. S. 290 (1985)).

In short, it’s important for nonprofits and volunteers to understand and agree on their purpose. Best practices would probably dictate that volunteers and interns sign agreements that spell out their relationship with the nonprofit organization. If your organization has such an agreement, please send it to me or comment below.


Legalities of Nonprofit Internships —Blue Avocado
Volunteer or Employee: Do You Know the Difference —Nonprofit Risk Management Center
Unpaid Internships – Common but Illegal —Labor and Employment Law Blog
Nonprofit Interns —National Council of Nonprofits
Fact Sheet #71 —U.S. Department of Labor – Wage and Hour Division

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