To pay, or not to pay? For Arizona employers offering internships, that is the question. Since the Great Recession, the number of unpaid internships has mushroomed, presumably because employers desire to reduce costs while students still need to bolster their resumes. What for-profit employers need to know, however, is that most unpaid internships violate Federal and Arizona laws.

The Fair Labor Standards Act (FLSA) is a federal law that defines “employ” and “employee” very broadly. Interns who qualify as employees under the FLSA must be compensated pursuant to federal and state minimum wage and overtime laws. Several big companies, including Fox Searchlight and NBC Universal, have recently been hit with million-dollar class action lawsuits from former and current unpaid interns. In addition to private lawsuits, employers violating the FLSA can face stiff fines, including the payment of back taxes.

The Department of Labor has established six criteria that must be met in order for an unpaid internship to be legal in the for-profit context:

• The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
• The internship experience is for the benefit of the intern;
• The intern does not displace regular employees, but works under close supervision of existing staff;
• The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
• The intern is not necessarily entitled to a job at the conclusion of the internship; and
• The employer and intern understand that the intern is not entitled to wages for the time spent in the internship.

Most unpaid internships in Arizona cannot meet the above six criteria. Recognizing this, the Department of Labor is cracking down on unpaid internships in an attempt to discourage the practice.

Before offering an unpaid internship this summer, Arizona employers should seek the advice of competent legal counsel to prevent their internship program from becoming a Shakespearean tragedy.

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We encourage employers who have specific questions about this or any employment law topics to contact Lindsay Leavitt at (602) 530-8091 or lindsay.leavitt@gknet.com.