Rules for Unpaid Internships | Complete Payroll

Every employee in the United States of America is entitled to minimum wage, overtime pay and other benefits - according to federal law, the Fair Labor Standards Act. But there is one exemption - for people who work for their own personal advantage, rather than that of their employer. So, for the purposes of federal law, these people may be considered trainees and don't have to be paid, provided the relationship between the employer and the trainee or unpaid intern meet the necessary criteria.

Walling vs. Portland Terminal Company (1947)

The precedent for unpaid internships was set by the Supreme Court case of Walling vs. Portland Terminal Company, back in 1947. A railroad company would give prospective yard brakement training courses that would last 7-8 days. When the trainees would pass they course, they would become eligible for employment when needed (and in this case, were paid a retroactive allowance for their time during training). Trainees did not take the place of paid employees, nor did they expedite the railroad's business. In fact, accommodating them would slow it down, if anything. For those reasons and more, the United States Supreme Court ruled in 1947 such a trainee did not technically meet the definition of an "employee" as stated within the Fair Labor Standards Act Pp. 330 U. S. 152-153 - thus setting the precendent for unpaid internships that are common today.

The 6 factors unpaid interns must meet

In order to meet the exemption established by the Supreme Court, and for the employer to legally administer unpaid internships, the internship must meet the following criteria...

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.
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

The U.S. Department of Labor, which enforces the FLSA, requires all criteria to be met in order for organizations to engage unpaid internships.

The key takeaways for anyone looking to hire unpaid interns is to have an appreciation for the nebulous area of the law they are entering, understanding the difficulty of complying with the Department of Labor’s specifications, and finally, ensuring they do all they can to be sure they are in compliance with the law.

- Peter Minton, Attorney, Minton Law Group, P.C.

Some of the above requirements may be covered by an agreement, but some are more subjective and therefore require a company looking to "hire" unpaid interns to create a program that meets these factors.