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Free Labor By Any Other Name

Last year’s film The Internship follows two 40-something, down-on-their-luck watch salesmen looking for a job after being laid off. Billy (played by Vince Vaughn), the more ambitious of the two, tells his friend Nick (played by Owen Wilson) that “Google wants us!” to which Wilson’s character responds enthusiastically, “You got us jobs at Google?” Vaughn’s character replies, “Well, it’s not actually a job job…it’s an interview for an internship that has a better-than-not chance of materializing into a job.”

In reality, there were some 40,000 applications for only 1,500 positions as Google interns (otherwise known as intern ‘Nooglers’) in 2013. Why such competition for just an internship? Well, Google’s internship is unlike most internships: the company actually pays interns, and pays them fairly well. That’s right, the just under 4% intern acceptance rate can largely be attributed to a monthly compensation on average of $5,800 (2013). The majority of firms today do not compensate their interns anything at all, by some accounts two thirds of interns are unpaid. In fact, the word internship has more or less become synonymous with unpaid work. Without knowing more about a particular internship position, most students today simply assume they will receive no compensation.

Even so, landing an internship, much less a job, in a down economy is no easy feat. Perhaps more than ever, students and recent graduates flock to internships in the hopes of proving themselves and getting a job at the end. In fact, some students even pay to intern abroad through a variety of for-profit placement companies.

In theory, internships are supposed to provide interns with an enriching educational experience that is supposed to be for the benefit of the intern. Employers are to provide training which is not supposed to give them an immediate advantage from the activities of the intern. In other words, what internships are certainly not supposed to be is “employment.” In fact, interns are not employees in the eyes of the law. Recently, a federal judge decided an intern could not bring a sexual harassment suit, since only employees could do so.

Among the many pivotal things the Fair Labor Standards Act of 1938 (FLSA) established was a federal minimum wage. The FLSA covers all businesses involved in interstate commerce, those whose revenues amount to at least $500,000 annually. It also applies to all federal government employees. The current federal minimum wage is $7.25/hour, but a number of states have higher minimums. Washington State, for example, has the highest minimum wage at $9.32/hour. Not only are employers required to pay minimum wage to employees under FLSA, but they are also required to pay overtime. But few people know that there is a separate federal “Youth Minimum Wage,” which applies to employees under the age of 20 and is currently $4.25/hr.

In the 1947 case of Walling v. Portland Terminal Company, the U.S. Supreme Court dealt with an exception to the application of the FLSA, finding that it does not apply to those who work on the premises of another for their own advantage (e.g., internships). The case involved a group of trainee railroad workers whose completion of a training course was a condition to their actual employment at the railroad. The Court came up with a six-part test that can be applied to internships today and is currently used by the Department of Labor: (1) the internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in a vocational school; (2) the 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 his/her operations may actually be impeded; (5) the intern is not necessarily entitled to a job at the conclusion of the internship; and (6) the employer and intern understand that the intern is not entitled to wages for the time spent in internship.

Ironically, one area that has been known to rampantly abuse these requirements is the legal profession. Law students and, in some cases, fresh law graduates jump on opportunities to work as “law clerks” or “interns” for firms and government agencies, which offer no pay (due primarily to the saturated law market with relatively few jobs). Many of these law interns, using their law school training, spend long hours doing legal research that undoubtedly offers firms a direct benefit. But what constitutes a learning environment is very subjective. There is also a recent instance of a federal judge offering a position for a “Volunteer Law Clerk”. The judge, who should have known better, was looking for a candidate who already had a law degree!

Unpaid internships have been a long-held practice in many industries, especially the media, where interns undoubtedly help keep costs down. Last year, a federal judge ruled that Fox Searchlight Pictures violated federal labor laws as well as New York state minimum wage laws when it employed two production interns working on the film Black Swan for no pay. The federal judge explained that the exception created in Walling is a very narrow one and the Walling trainees actually impeded the railroad’s business and worked only in their own interest.

Shortly after this ruling, the New York Times ran an article entitled “Unpaid Interns: Silent No More,” highlighting several interest groups and pending class action lawsuits being filed by former unpaid interns. Since then, some of the media companies that have been targeted include Conde Nast, Hearst Magazines, Gawker, Warner Music and NBC Universal. While the merits of each of these lawsuits can be disputed, the wave of class action has prompted several companies in the entertainment industry to reexamine their internship programs. A number of firms, acting on the advice of counsel, have abandoned their internship programs altogether.

The laws have been pretty clear for a long time. Employers in competitive fields have just been ignoring them. And a surplus of job seekers, especially those with college degrees, in increasing numbers seeking to gain skills, make contacts and beef up their resumes, like the characters in The Internship, have allowed the employers to create the culture of internship.

So here’s the question: should that culture come to an end, so that the unemployed can choose to work for no pay? Said differently, are we better off with a system that allows for voluntary indenture in the hope that the unemployed can gain benefits through the experiences and associations that may trickle down to them? Or should we just see to it that interns are paid minimum wage?

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