If you have applicants desiring to intern at your restaurant - and for purposes of this article, I’ll use “interns” to include all apprentices, stages, and the like - and they are willing to work for free to gain experience or boost their resume, you may be surprised to learn that in many cases these “interns” are actually employees entitled to minimum wage and overtime compensation.
Recently, a number of high-profile lawsuits have been filed against major corporations for allegedly failing to pay their interns. If past wage and hour trends are any indication, this type of lawsuit will quickly spread down to small and mid-sized employers as eager attorneys scramble to catch unwitting companies off guard.
What is an “Employee?”
Employees are individuals who are “suffered or permitted to work.” This extremely broad definition means the class of persons excluded from “employees” is very small. The Supreme Court decided long ago, however, that even this broad definition “cannot be interpreted so as to make a person whose work serves only his own interest an employee of another person who gives him aid and instruction.” Thus, trainees and interns are not employees under the FLSA, and need not receive compensation, provided that certain factors are met.
The Department of Labor has established six criteria to apply when determining whether a person meets the test for an unpaid intern. If all of the factors are met, then an employment relationship does not exist and the minimum wage and overtime provision of the FLSA do not apply to the intern.
1. 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.
Is the internship structured around a classroom or academic experience, or does a college oversee the program? If so, it’s more likely an internship. On the other hand, if it is centered on the employer’s actual operations, then it’s more akin to an employment relationship.
2. The internship experience is for the benefit of the intern.
Overall, the internship must provide something beyond the on-the-job training that employees receive. It is not sufficient for the intern to learn how a restaurant kitchen operates, for example, by working (without pay) as a line cook or sous chef. How a kitchen operates, or any other general concept, is something the intern can accomplish simply by being there, just as paid employees do. While the intern may receive resume listings, job references, and restaurant operation knowledge, those benefits are incidental to working in the restaurant like any other employee and - if improperly structured - are not the result of an internship intentionally designed to benefit the intern.
The intern should also be receiving skills that can be used in multiple restaurant settings as opposed to skills specific to one restaurant’s operation. Nor should the intern perform the restaurant’s routine work on a regular and recurring basis.
3. The intern does not displace regular employees, but works under close supervision of existing staff.
Restaurants should not bring on interns to substitute for regular workers or to supplement its existing workforce during specific periods, such as a busy season. If, without the intern, the restaurant would have hired additional employees or required existing staff to work additional hours, then it’s likely that the intern is an employee.
Interns may job shadow to learn certain restaurateur or culinary functions under close and constant supervision of restaurant employees, but the intern should perform only minimal work. If the intern is receiving the same level of supervision as regular employees, then the factor weighs against internship status.
4. 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 trap many employers fall into is accepting interns to assist its existing employees or to increase production at little or no cost. This is particularly attractive during an economic slowdown. The DOL, however, envisions a valid internship as one where the employer is using its resources to benefit and advance the intern’s abilities. If an otherwise productive employee takes time out of her day to show the intern new skills or processes, not only is the employee not doing productive work for the employer, but her absence (and the intern’s presence) may be slowing the employer down.
5. The intern is not necessarily entitled to a job at the conclusion of the internship.
Employers are advised to set fixed durations for their internships from the outset. The internship period should not be used as a trial period for employment.
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
An intern who joins your company should have a very clear understanding that there will be no compensation for the time they spend interning. They should sign an agreement releasing the restaurant from liability, confirming that the internship meets the DOL’s six factors, stating no pay is being received, and acknowledging that no job is guaranteed. It’s important to understand, however, that simply having this agreement does not remove the employer’s obligation to comply with the other five factors. The DOL and the court will look to the economic realities of the intern’s situation, not whether she has signed an agreement saying she is an “intern.”
Why Take This Seriously
If suit is filed against your restaurant by the unpaid/underpaid intern, or by the DOL on the interns’ behalf, the monetary damages can add up quickly. Not only are they entitled to back pay for up to three years, but they can receive liquidated damages (doubling the amount of back pay), court costs, and attorneys’ fees. This is in addition to any tax, insurance, and benefit implications that come along with the misclassification.
As is often the case in the employment law arena, an ounce of prevention is worth a pound of cure.