During the recent recession, I have had numerous clients use unpaid interns to supplement their workforces.  They explain it is a “win-win” situation:  “We don’t have to pay them and they gain valuable experience.”  Unfortunately, it is not that simple.

Both the federal and state law require employers to pay employees at least minimum wage for all hours worked.  Whether an “intern” is really an “employee” for purposes of the wage and hour laws, is a very fact intensive analysis.  In essence, if the employer derives a direct benefit from the intern’s work, it is likely that the Department of Labor (and a Federal court) will find that an employment relationship exists.  As a result, the employer will be liable for all minimum wages the intern should have received during the engagement.  This is true even if the “intern” has agreed in writing to the arrangement and fully understands that they will not be paid for their services.   See the recent ABA Law Journal article highlighting this issue:  More unpaid interns say they want to be compensated.

With the significant rise in wage and hour lawsuits, we strongly advise our clients to evaluate the risks versus the rewards of utilizing unpaid interns.  Improperly classifying an employee as an “intern” exposes businesses to federal audits and private litigation, both of which are costly to defend.  In addition, there can be hefty back pay awards, liquidated damages penalties and even an obligation to pay the intern’s attorneys’ fees and costs if there is a misclassification.  Indeed, any savings a business may realize from using “free” labor will be quickly nullified (and likely surpassed) by the expenses and liability associated with failing to comply with the federal and state minimum wage requirements.

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