Fashionably Legal: How to Avoid Having Your Unpaid Interns Cost You a Fortune

While having unpaid interns may seem like a great way to increase productivity without increasing costs—failure to comply with federal regulations can lead to hefty fines.
The key to having a lawful unpaid internship program is understanding the distinction (in the eyes of the law) between an “employee” (who must be paid minimum wage and overtime) and a “trainee” (an individual who is personally benefited by the aid or instruction of another and who doesn’t have to be paid).
Indeed, in the fast-paced and chaotic world of fashion, where interns provide an important source of human capital for start-ups as well as established brands—drawing the distinction between “trainee” and “employee” is particularly challenging. Fortunately, the Department of Labor has shed some light on this seemingly superficial distinction providing a list of factors characteristic of a “trainee.” According to the Department of Labor, an unpaid internship is legal ONLY if it meets all of the following criterion:
1. The experience is educational.
Not every project has to translate into a resume line, but the substantive/skills based work MUST outweigh the coffee/dry-cleaning fetching tasks.

2. The intern is the real beneficiary, not the employer.
Inevitably there will be some mutual benefit from a successful internship program, but the primary motivation for hiring the intern MUST be to help the intern develop his or her own skills and NOT to avoid hiring a full-time employee.

3. The intern is NOT there to replace existing staff, but to work with and learn from the existing staff.
For example, bringing an intern to a meeting is a great teaching moment—sending them in your place is not.

4. The employer derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded.
Having an intern may create more work for the employer not less.

5. The intern is not necessarily entitled to a job at the conclusion of the internship.
The internship should not be used as a mechanism for avoiding actually paying to train an employee or as a trial period.

6. Both the employer and the intern understand the unpaid nature of the position.
Communication is paramount and both parties should always be on the same page with respect to compensation and expectations.
If after reading the above, you think meeting these six requirements sounds like too much work or you have fallen fate to idea that “you’ll never get caught”—consider another list of six—the potential consequences of not complying:
1. Violation of discrimination laws
2. Violation of workers compensation regulations
3. Violation of state and federal tax laws
4. Violation of unemployment insurance coverage regulations
5. Imposition of hefty fines
6. Imposition of costly legal fees
So what should you do to ensure your internship program complies with the law?
Not surprisingly, in the diverse world of fashion there is no one-size-fits-all answer. Accordingly, consider each of the suggestions below (with legal counsel for the company if possible) to determine the right solution.
1. Consider paying your interns minimum wage.
2. Only hire unpaid interns who receive course credit for the internship.
3. Create a structured internship program with workshops and other educational components.
4. Formalize the internship with an agreement that spells out each of the Department of Labor’s six factors and how they will be met.
5. Circulate a memo to all employees who work with interns letting them know what is and is not appropriate.
Finally, don’t get fooled by the notion that “everyone is doing it, so it must be okay” because (a) not everyone is doing it and (b) just like the counterfeit Gucci on canal street—It’s really NOT okay!

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Hand Baldachin & Amburgey LLP is a member of the Business Services Network and Doug Hand is an advisor to the CFDA {FASHION INCUBATOR}