A Nonprofit Dilemma: Must Interns Be Paid?

Transcription

1 Greater Lehigh Valley Chamber of Commerce Non-Profit & Business Partners Council Breakfast Seminar A Nonprofit Dilemma: Must Interns Be Paid? Presented by: Jacob M. Sitman, Esquire Fitzpatrick Lentz & Bubba, P.C. November 18, 2013

2 Business Real Estate Land Use Commercial Litigation Bankruptcy Estate Planning & Taxation Healthcare Employment Family Law

3 Jacob M. Sitman Shareholder Employment Law and Labor Relations Group Fitzpatrick, Lentz & Bubba, P.C. Rutgers University School of Law, J.D., with honors Muhlenberg College, B.A., Economics and International Studies, cum laude Labor and Employment Law Litigation (610)

4 Today s Main Learning Objectives: 1. Reasons for the uptick in legal claims filed by unpaid interns 2. Risks and costs of not properly determining whether interns must be paid 3. How to determine whether an intern must be paid 4. How to develop or modify unpaid internship programs to minimize the risk of wage payment claims

5 Recent Wage and Hour Claims by Unpaid Interns Black Swan /Fox Searchlight Hearst Corporation/Harper s Bazaar and Cosmopolitan magazines Charlie Rose/PBS television program Increased government enforcement of existing law regarding internships and the volunteer / trainee vs. employee distinction

6 Why the Uptick? Tough/recovering economy Fewer jobs/fewer good paying jobs (particularly for college graduates) More informed employees in the internet/digital age More litigious societal trend Fee-shifting statutes/how the lawyers get paid

7 Additional Reasons for the Uptick Perception that employers are taking advantage of employees to get free labor, particularly in a tough economy Lost payroll and income tax revenue for state and local governments Lost unemployment compensation coverage for employees Lost workers compensation coverage for employees

8 The Nature and Reasons for Claims Wage claims by unpaid interns include: Straight pay/minimum wage Overtime pay Break time/lunch breaks Off-the-clock time On-call time Commission/bonus payments

9 Other Potential Employment-Related Claims and Issues Benefit plan coverage (health, etc.) Unemployment compensation Workers compensation Payroll taxes, fines, penalties and interest Discrimination/harassment/retaliation claims

10 Risks and Costs Back pay (2 years, but sometimes up to 3 years) Punitive/liquidated damages Attorneys fees and court costs Cases often filed as class/collective actions Time away from work for key personnel Distraction from employer s business or mission Bad publicity/hit to employer s goodwill/reputation Lower employee morale/productivity

11 Non-Profits Differ from For-Profits The good news: Non-profits have significantly more leeway and less exposure to wage and hour claims than for-profits when it comes to unpaid internships. The bad news: 501(c)(3) designation, alone, is not dispositive, and the exact legal framework for determining how much leeway non-profits have is relatively undeveloped.

12 The For-Profit Test to Determine Whether an Intern Must Be Paid An employer must either pay each intern at least the minimum wage, plus overtime where applicable, or satisfy each of the following six criteria:

13 The For-Profit Test to Determine Whether an Intern Must Be Paid 1. Similar to training in an educational environment; 2. Experience is for the benefit of the intern; 3. Intern does not displace regular employees, works under close supervision of existing staff; 4. Employer derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded; 5. No job guaranteed at the end; 6. Both understand that the intern is not entitled to wages.

14 The Test to Determine Whether a Nonprofit Intern Must Be Paid The FLSA makes a special exception under certain circumstances for individuals who volunteer to perform services for a state or local government agency and for individuals who volunteer for humanitarian purposes for private non-profit food banks...

15 The Test to Determine Whether a Nonprofit Intern Must Be Paid WHD also recognizes an exception for individuals who volunteer their time, freely and without anticipation of compensation for religious, charitable, civic, or humanitarian purposes to nonprofit organizations. Unpaid internships in the public sector and for non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible

16 The Test to Determine Whether a Nonprofit Intern Must Be Paid WHD is reviewing the need for additional guidance on internships in the public and non-profit sectors. --U.S. Dept. of Labor, Wage and Hour Division, Fact Sheet #71 (April 2010)

17 The Test to Determine Whether a Nonprofit Intern Must Be Paid The DOL is the expert, but its position is not binding; it is persuasive. Courts have traditionally relied upon the economic realities test for determining whether an individual is an employee for purposes of wage and hour laws and other purposes. A totality of the circumstances analysis.

18 Implementing a Nonprofit Unpaid Internship Program to Minimize the Risk of Wage Payment (and other) Claims 1. Evaluate the organization s operations and determine whether it: has commercial aspects competes with commercial/for-profit businesses solicits donations engages in external nonprofit activities has economically dependent volunteers/interns

19 Implementing a Nonprofit Unpaid Internship Program to Minimize the Risk of Wage Payment Claims 2. Develop a written internship program description, highlighting the purposes and scope of the internship 3. Train staff on the parameters of the internship program to ensure compliance and consistency. 4. Develop and require that interns sign an internship agreement that spells out the nature and scope of the relationship

20 The Internship Agreement Should Make Several Things Clear The Volunteer intern: Participates in the volunteer unpaid internship program Is not entitled to a job Volunteers his/her time freely and without anticipation of any compensation or benefits Shall not be paid and is not eligible for any fringe or employment benefits Provides services for his/her own religious, charitable, civic, and/or humanitarian purposes Is not an employee of the Organization

21 Questions? Query: Are trade associations or political interest groups for charitable, civic or humanitarian purposes? Query: What if interns receive some type of remuneration (i.e., stipend, expenses, benefits or nominal fees)? Is the payment disguised wage compensation?

22 Jacob M. Sitman Fitzpatrick, Lentz & Bubba, P.C. Labor and Employment Law Litigation (610)