Defining California Unpaid Internships

As with the definitions previously mentioned in this post, there is no unique definition for an unpaid internship in the general sense. However, California has some bright-line rules regarding unpaid internships applicable to entities in the non-profit sector. Many of these definitions are, however, premised on some underlying principles that apply to other entities and assist a reader in understanding what an unpaid internship is. Specific to the nonprofit sector and for purposes of California law, an unpaid internship is one in which the unpaid intern is an enrolled student in a program that specifically qualifies under California Education Code Section 66010.4. Under that section (the relevant portion of which is 66010.4(a)(2)), a program is one that is associated with or integrated into a college, university, or other degree-granting academic program and that requires enrollment by a student. This means that internships qualifying as unpaid must be associated with an academic program that is, in turn, integrated into a regular college or university program in that it is part of a larger course of study . Further, the program must require enrollment, meaning that it cannot be voluntary for the student; rather, he or she must be enrolled in order to participate in the program. Furthermore, an academic program qualifying under Education Code Section 66010.4 is one that is recognized by a nonprofit institution of higher education separately accredited from the trade or vocational institution where the course of study is taught. It should be noted, though, that Education Code Section 66010.4 doesn’t always apply to programs designed only for high school students. In such cases, a nonprofit can still qualify for the exemption if the program meets the requirements of section 1299.6 of the Labor Code. While the Labor Code does not define "apprentice," it does provide that, among the requirements for an apprenticeship program and therefore to qualify for this exemption, the program must also include a progressive paycheck system and a defined term of employment.

Legal Standards for California Unpaid Internships

The legal criteria for unpaid internships in California is set forth in California Labor Code sections 3351 and 3352, which define "employment" broadly to include every person under the age of 18 who participates or is permitted to participate in uncompensated work. However, the law provides an exception for bona fide vocational or special education training programs where the individual’s services are compensated by a rehabilitative charitable or nonprofit organization. This exception does not extend to for-profit businesses like the pharmacy intern example above. Instead, such internships are only permitted if they also meet the six federal legal criteria for interns set forth by the U.S. Department of Labor in an Interpretive Bulletin on Internships.

• Training as an Integral Part of Establishment. The internship, even though it includes actual operation of the facilities of the employer, is similar to training that would be given in an educational environment. The training is for the benefit of the intern.
• Experience that is Displaced from Regular Employees. The intern does not displace regular employees, but works under the close supervision of existing staff.
• No Immediate Advantage to Employer. The employer that provides the training derives no immediate advantage from the activities of the intern(s), and on occasion its operations may actually be impeded.
• No Entitlement to a Job. The intern is not necessarily entitled to a job at the conclusion of the internship period and the employer and the intern understand that the internship is scheduled to continue only for a fixed length of time, and that there is no job guarantee at the end of the internship.
• No Wages. The employer and the intern understand that the internship is conducted without entitlement to a wage, hour, or other employee benefit.
• Intern not Entitled to Job. The intern is not necessarily entitled to a job at the conclusion of the internship period, and the employer and the intern understand that the internship is scheduled to continue only for a fixed length of time, and that there is no job guarantee at the end of the internship.

In reviewing the relationship as a whole, the related primary beneficiary test weighs the economic realities of the internship against the actual benefits received by the employee. Factors to consider in conducting the primary beneficiary test include: 1) whether the internship and the employer’s operations are tied to an existing educational program; 2) whether the entity or individual providing the training derives some benefit, both immediate and/or potential, from the intern’s activities (e.g., the employer’s operations may actually be impeded); 3) whether the intern’s work experience complements the academic program rather than interfering with it; 4) whether the intern or the employer is primarily responsible for the benefits derived from the relationship; 5) whether there is a realistic job opportunity at the conclusion of the relationship; 6) whether the intern or the employer is primarily responsible for compensation; and 7) any other factor not listed in these factors that is relevant to the relationship.

Employer Requirements and Prohibitions

To comply with the law and avoid violating California wage and hour laws, unpaid interns must not perform work for an employer that results directly in an advantage to the employer. Because organizations typically cannot enjoy the benefits of an unpaid intern without affording the intern the opportunity for hands-on experience, it is important that businesses err on the side of caution when designating interns as such rather than employees.
An unpaid intern can perform general tasks or assignments that aid an employer, but should not engage in regular duties or ongoing tasks that are done by paid employees. If, for example, a restaurant hires an intern to learn its operations but then instructs the intern to regularly wait tables while other staff take breaks or sick leaves, the intern’s primary experience is functionally the same as that of the paid wait staff. In this situation, the intern performs the same work as someone in a non-exempt position (like an unpaid worker), thus complicating the defense of the unpaid internship.
Like volunteer work, unpaid interns are prohibited from displacing paid workers, mainly because the federal Wage and Hour Division (WHD) has held that a volunteer who performs services on a regular basis in place of regular employees must be paid for such services. And while California treats interns as volunteers when they do not receive any compensation in either form, the WHD stated in a 2009 opinion letter that a "volunteer who works for for-profit private sector employers should not actually perform the regular work of employees." Other courts have similarly held that such services "are sufficiently similar to services for which the employer would normally compensate employees and are thus sufficient to establish an employment relationship."
Moreover, unpaid interns are not at will employees, and businesses must take certain steps to ensure that they do not find themselves on the hook for damages. Employers should follow certain obligations when hiring unpaid interns, including:
• Providing a clear delineation between an intern and an employee in Internal Revenue Service and/or state tax forms
• Keeping written records of internship tasks
• Drafting a detailed internship description or job posting
• Identifying a supervisor to oversee the intern (preferably the intern’s professional field of interest), and requiring mentors to meet regularly with the intern as a way to set appropriate learning expectations and objectives
• Preparing a termination letter if the internship ends
California law also includes specific restrictions on internships within the entertainment industry. Existing law prohibits all employers in the entertainment industry from employing minors for non-educational instructional or training purposes, except where these minors either receive academic credit or have a written agreement ensuring the internship is for their benefit. The written agreement must meet stringent standards, including the following:

Pros and Cons of Unpaid Internships

The potential benefits of unpaid internships include experiences that can further students’ careers in real ways. Internships help students gain résumé-building skills, learn about their industries, and develop contacts that could pay off down the line. For employers, unpaid internships are a way to vet and gain the kind of talent typically reserved for full-time employees.
But those advantages don’t always apply. Some unpaid internships have created legal headaches, especially in California, where unpaid internships have received increased scrutiny. A number of high-profile lawsuits have shone fresh light on the value of such internships. The potential drawbacks to employers and interns include:
Interns who believe that they are being misused as cheap labor are more likely to sue than interns who believe they are getting something valuable from the experience. And although many employers have already overcome one such lawsuit, there may well be others down the road.

California Unpaid Internship Cases

In assessing California law on unpaid internships it’s worthwhile looking at case studies or specific examples from legal cases. As a result of the increase in internship programs, especially in California, there has also been an increase in litigation regarding whether those interns should be deemed employees and paid according to state and federal laws. Given the right set of circumstances resulting in an employer misclassifying an intern and a resulting lawsuit, hefty back pay of minimum wage, overtime (if applicable), civil penalties and legal fees can be awarded to the intern for even one day of work performed in California.
Gold v. New York Times and N.L.R.B. v. Laurus Group Ltd. A 2006 decision by the National Labor Relations Board ordered The New York Times Company to bargain with a union based in part on a finding of an unpaid intern violating collective bargaining laws and interfering with finding a proper bargaining representative for Times employees. This decision raised questions and fears about the future of unpaid internship programs. The case was first initiated in 2002 for unrelated issues, but an RRDC organizer witnessed the unpaid internship program and reported it. The unpaid intros would take one class with their supervisor and shadow them. They were essentially on the job training for the job of researcher. The employer argued they were not employees because they were not dependent on the employer or a part of the commercial scope of business and that the relationship was quid pro quo, you get experience, we get help. The case went under NLRB analysis rather than Wickline or the new Bay Area Hospital test for unpaid interns. The NLRB determined that Times was benefiting from content created by the interns (finding the interns were employees and should be paid minimum wage). This case was settled before review by the D.C. Appeals Court, however, the case demonstrates the risks to employers who do not follow the required tests to classify interns as trainees not employees. In this case the employer was ordered to cease and desist from the arrangement. The significance of the case is that it provides some commentary or guidance on how positions should be classified, the importance of keeping records of both interns and traditional employees, and how impactful the relationships with interns can be on the works of other employees or the business as a whole.
Donahue v. AMN Services, Inc. (9th Cir. 2011) The Ninth Circuit in California examined whether certain internship programs offered by AMN Services, Inc., a nurse staffing company, violated the FLSA. The Ninth Circuit held that the interns were actually employees rather than unpaid interns and should be entitled to minimum wage and overtime like other nurses. The Court applied the "economic reality" test , including the following factors: (1) the degree of the employer’s right to control the manner in which the work is to be performed; (2) the opportunity for profit or loss that depends upon the alleged employee’s managerial skill; (3) the alleged employee’s investment in equipment or materials required for the task; (4) whether the service rendered requires a special skill; (5) the degree of permanence of the working relationship; and (6) whether the service rendered is an integral part of the alleged employer’s business. AMN provided training for 4-5 weeks and provided all nurse interns with two computers upon employment in order to set up AMN’s software and was responsible for AMN paperwork. The interns could work at two different sites with AMN or only one. The nurses could decline an assignment from the employer. The Court granted the Secretary of Labor’s Petition for Review based on the classification of the unpaid interns as employees who should have been paid minimum wage and overtime. The Court found that AMN exercised significant control over its interns and provided them with the skills they needed and other equipment necessary for the job. The Court applied the economic reality test and determined that it was the interns’ economic reality that they were employees and should be paid for the work they were performing. As such, pay was awarded for all time worked as interns.
Pippins v. KPMG LLP, (S.D.N.Y. 2012) In 2012, a federal district judge denied KPMG LLP’s motion to dismiss an unpaid intern class action lawsuit. The plaintiff was an unpaid intern in the audit department during the summer of 2010. The plaintiff brought claims for overtime and minimum wage violations based on the allegations that the audit internship was "more closely related to employment than education." The employer argued that the audit interns were not employees because the internship was part of a formal program established to provide university credit, the employer did not receive a direct benefit from the interns and the program was entirely self-contained within the terms of the internship. The employer argued in favor of the employer in Pippins, but later settled with the employment agency.
While these case studies are not binding law, they demonstrate the types of circumstances and behaviors to avoid as employers implementing unpaid internship programs. It is clear that the courts and agencies have a history of applying prior precedent and law toward protecting the rights of the interns as potential employees that have been wrongly classified.

California Unpaid Internship Alternatives

There are a variety of ways in which a student or recent graduate can gain work experience in a particular field without having to receive academic credit or work through an unpaid internship. For instance, some employers offer paid internship opportunities to students for college credit or for an hourly wage. Additionally, many non-profit organizations offer volunteer opportunities for individuals without requiring that academic credit be given, and some programs even provide minimum wage to volunteers. Others allow volunteers to work from home. Some schools and students are also able to work out arrangements to allow the student to work part-time for a discounted price in lieu of receiving academic credit.
Another option is to work with organizations such as an Employment Development Department (EDD) office or Temporary Relief and Assistance for Needy Families (TANF) office. Many of these offices offer bridge-to-work programs that assist individuals in gaining work experience through paid training in non-union jobs, and the government pays the program participants for their work during the training period. Programs such as these typically have many opportunities available in high-demand fields such as construction. More information on finding these types of opportunities can be found by visiting the EDD website or those of other government agencies, or by walking into any one of their offices in person.

Recent Developments and Future Predictions

Over the last few years, California’s interns have been the subject of ongoing litigation. In July 2017, the Ninth Circuit Court of Appeal ruled that Amy Wren, who has worked part time as an unpaid intern with the NBC television program "Days of Our Lives" for about nine (9) years, would continue to have her case litigated under the U.S. Fair Labor Standards Act (FLSA). In coming months, Wren’s suit will join several other high-profile lawsuits against popular media companies. As a result of these developments over the last few years, it seems that litigation efforts aimed at the "status" of unpaid interns will continue to grow, and popular media companies may be the next series of plaintiffs to settle with unpaid interns.
Departure from California law because of the FLSA While many areas of California’s labor laws have been expanding in terms of employee classification, copyright, and workplace protection, the applicable tests for whether someone is classified as an "intern" has actually contracted some. This involuntary reduction of intern protections is largely the result of a 2013 California Supreme Court case Ashby v. McKissock. The Ashby court determined that unpaid interns cannot seek protection under California’s labor laws when their practical and philosophical training is virtually the same as the commercial training offered by for-profit companies. While the unpaid internship was undone in this decision, it was not turned into an actual employment relationship. The court relied upon the stricter test for interns under the U.S. FLSA, and held that unpaid interns who met that stricter test ‘simply exercised a few of the obligations which interns performed[, such] the same obligations which paid employees also performed.’
While Ashby tackled whether unpaid interns could seek protection under California law, the decision reinforced the stricter FLSA test for interns, and has resulted in a number of cases filed in federal court.
Litigation on the rise Many of these high-profile cases have resulted in litigation on whether an individual’s classification as an intern under the FLSA withstands judicial scrutiny. For example , in 2014, aspiring model Lauren Wasser sought to certify a class of 30 unpaid interns who provided modeling, brand ambassador, and off-site event support for Guess Inc. While the interns were required to wear a Guess uniform on-site, they did not personally model its clothes for catalog or ad campaigns, and were responsible for most of their activities, even off company property. While the original district court judge focused on how much Guess’ interns did not do, the Ninth Circuit disagreed and held that this factor is irrelevant; the primary question is whether the intern expects to be compensated by the company or the company’s clients.
In 2016, the New York Labor Court in Wong v. CKX decided a similar question more narrowly. The interns in that case were primarily run through a company called Intern, Inc. that would help third-party companies hire season interns for their programs. With each white-collar job, CKX set the interns’ hours, responsibilities, attendance counting, and basic level of training applicable to all interns. The court determined that the intern could seek protection under New York law and rejected determination with respect to the company assurances against compensation. As a result, ongoing litigation and settlements are sure to continue.
While decisions favorable to interns have been few and far between, the trend has been to side with interns who "expected" compensation. If this trend continues, interns across California will likely continue to file class action lawsuits.
Future trends in intern laws The impact of federal cases on state law is still unclear. The trend has been to use the FLSA standards to analyze unpaid interns, but many in the unionization realm may seek regulation of nonpaid interns. With the threat of unions increasing each year, federal regulation may surface in order to protect low-wage workers in an ever increasing economy. For now, however, California interns can take some comfort knowing that their rights can be pretty expansive.