Are Companies Taking Advantage of Unpaid Interns?

Over the past several years, unpaid internships have gained immense popularity. But since the onset of the recession, so many young people working for free has raised some eyebrows. Are companies just trying to save money by bring in these interns to do work that they would have paid for in a good economy?

The New York Times had an article this weekend addressing the topic. It said:

The Labor Department says it is cracking down on firms that fail to pay interns properly and expanding efforts to educate companies, colleges and students on the law regarding internships.

"If you're a for-profit employer or you want to pursue an internship with a for-profit employer, there aren't going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law," said Nancy J. Leppink, the acting director of the department's wage and hour division.

Of course, this matter because in the U.S. workers must be paid. That's why we have a minimum wage. Even voluntarily working for free is against the law if the company is for-profit.

So how do you tell the difference? The Times article looks to the following Labor Department directive (.pdf), which lists six criteria:

1. The training, even though it includes actual operation of the facilities of the employer, is similar to what would be given in a vocational school or academic educational instruction;

2. The training is for the benefit of the trainees;

3. The trainees do not displace regular employees, but work under their close observation;

4. The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer's operations may actually be impeded;

5. The trainees are not necessarily entitled to a job at the conclusion of the training period; and

6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.

All six must be met.

These criteria are pretty strict. In particular, number four might be a hard one for many companies with internship programs to satisfy. It appears to require that the efforts of the intern not really benefit the company; in fact, they should sometimes impede it. Can you think of many companies that would be better off without their unpaid interns?

What would happen if the government ramps up enforcement to eliminate any internship that fails to adhere to this standard? Most firms would probably just attempt to tweak the internships to be in better compliance. But in cases where that's impossible, a company would have two options: eliminate the interns or hire them as paid employees.

Obviously, if a business derives advantages through the activities performed by its interns, then it makes sense that they should be paid. But in this tough economic climate, not all firms would be able to afford additional labor costs. Consequently, those companies forced to hire the interns needed for necessary tasks would have a harder time surviving. Others would just eliminate the internship positions, unleashing these young adults on the already swelling ranks of the unemployed.

Neither of these consequences is desirable. Forcing firms to pay interns could do more harm than good. If some workers are willing and able to work for free and feel they're benefiting from the experience, shouldn't that be enough to legitimize the relationship? If the economy were flourishing, such arrangements might be harder to justify. But right now might not be the right time to crack down on unpaid internships.