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Unpaid Internships Create Questions for Comp

Wednesday, April 28, 2010 | 0

By Julius Young
Boxer Gerson

Opportunities have been in short supply for many young high school and college graduates, as companies freeze hiring.

That's led to an uptick in grads seeking internships, even unpaid internships, as a bridge toward a career or graduate school.

How does California law deal with unpaid internships? What labor laws apply?

California's Division of Labor Standards Enforcement has now outlined its position. The DLSE policy is set forth in an opinion letter dated April 7, 2010 addressed to Joseph. V. Ambash of the Greenberg Traurig law firm.

The program in question was designed for 18 to 24 year olds who have not finished high school or a G.E.D. and had a training component similar to what would be offered in a vocational school. The program's goal was to empower young urban adults with IT and career skills. The program had a community college segment as part of the internship as well as a placement segment where participants would be placed at businesses or non-profits.

The DLSE concluded that these interns were not employees for purposes of coverage under California's minimum wage laws. Citing the U.S. Supreme Court's 1947 decision in Walling Vs. Portland Terminal Co,, 330 U.S. 148, the DLSE looked at six criteria:

  1. The training, even though it includes actual operation of the employer's facilities, is similar to that which would be given in a vocational school;
  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 derives no immediate advantage from the activities of trainees or students, and on occasion the employer's operations may be actually 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 memo notes that the above criteria must be applied in view of "all the circumstances" of the intern's activities.

Apparently the DLSE has in the past (now discontinued) used an 11-factor test which included these additional five factors:
  1. Whether any clinical training was part of an educational curriculum
  2. Whether the trainees or students received some employee benefits
  3. Whether the training was designed to benefit the particular employer or rather to qualify the trainee to work in similar businesses
  4. Whether the screening process was different than would be used for employment
  5. Whether advertisements for the program were couched in terms of education and training
According to the DLSE, the internship program would not be exempt "where the intern's activities become an integral part of the business' activities and the business derives any consequential economic benefit from the intern's activities".

The memo notes that "Agreements or other statements by trainees that they will not be paid for their activities do not constitute a waiver of protections under the FLSA but are relevant only insofar as it shows the expectations of trainees for purposes of this factor".

Writing a 17-page analysis, DLSE Acting Chief Counsel David Balter concluded that this particular internship program (for Year Up Inc.) satisfied the 6 criteria and that the interns would be exempt from California's minimum wage law.

Balter notes, however, that "the facts of any new intern placement which vary from your letter must continue to be reviewed on a case by case basis".

Clearly, since this internship program was exempt from California wage and hour labor laws, there would be no "employment" for California workers' comp purposes.

But the memo (which has not been tested in court) leaves open the possibility that internship programs which meet some but not all of the six criteria would fall afoul of California labor laws. At what point would such interns be deemed employees for wage and hour law purposes?

And if the intern is not exempt for wage and hour purposes, will the intern be an employee for workers' comp purposes? Would it make a difference if the intern is given some perks...a small scholarship, parking and meal allowance, expenses reimbursement, personal gifts, or something else of value? When does the line get crossed to where the intern is an employee?

These are interesting questions. If such situations have arisen in California workers' comp law, I'm not aware of them.

But in a weak economy we're likely to see more issues of this type arising in the comp world.

Here is the link to the DLSE memo:
http://www.dir.ca.gov/dlse/opinions/2010-04-07.pdf

Julius Young is a claimant's attorney for Boxer Gerson law firm in Oakland. This column was reprinted with his permission from his blog, http://workerscompzone.com/


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