Wage & Hour Defense Blog : Wage & Hour Lawyer & Attorney : Epstein Becker Green Law Firm : DOL Enforcement, FLSA Coverage

By: Betsy Johnson

In light of the IRS’ increased efforts to root out and capture unreported income, one of our hospitality clients recently asked us to provide some clarification regarding: 1) the obligations of employees to report tip income; 2) the obligations of employers to report tip income; and 3) the risks of underreporting of the tip income of its employees.

Employee Obligations:  Pursuant to the Internal Revenue Code and regulations, employees are required to report as income all tips they retain. Nevertheless, the actual amount that employees report to the IRS is an individual matter between the employee and the IRS.  While the employer may have a policy that mandates that employees report all cash tips and provide employees with reports of tips that are distributed through credit cards, the employer should not report tips to the IRS on behalf of employees and should not advise employees regarding how much tip income they should report.

Section 6053(a) of the Code requires employees to furnish written statements to their employers reporting all tips received (credit card and cash) in each calendar month.  However, employees should be required to report their tips for every pay period so that the total wages and proper FICA withholding can be taken in each pay period.  The employees are responsible for reporting their tips to be reported to the IRS back to the employer on a form created by the employer or on the IRS Form 4070. A copy of Form 4070 can be obtained at www.irs.gov/pub/irs-pdf/p1244.pdf.

The IRS publishes a pamphlet for employees which explains how tips should be recorded and reported. A copy of the “Guide to Tip Income Reporting” for employees can be obtained at www.irs.gov/pub/irs-pdf/p3148.pdf.

Employer Obligations:  On an annual basis, employers must report tip income reported by employees on IRS Form 8027. A copy of IRS Form 8027, "Employer's Annual Information Return of Tip Income and Allocated Tips" can be obtained at www.irs.gov/pub/irs-pdf/f8027.pdf.  The IRS Form 8027 requires that employers report the gross amount of charge tips (tips paid by credit card) for all employees, tips reported by employees, total credit card receipts, and gross sales. The IRS publishes a pamphlet for employers which explains how tips should be tracked and reported. A copy of the “Guide to Tip Income Reporting” for employers can be obtained at www.irs.gov/pub/irs-pdf/p3144.pdf.

To promote tip reporting compliance, the IRS has established the Tip Reporting Alternative Commitment (TRAC) program.  An explanation of the TRAC program can be obtained at www.irs.gov/pub/irs-utl/foodtrac.pdf. Employers can voluntarily sign an agreement with the IRS to participate in the TRAC program. The TRAC program is part of the Tip Rate Determination/Education Program that the Internal Revenue Service implemented in 1993 to promote tip reporting compliance.   

The TRAC program allows employers to avoid liability for FICA contributions where employees underreport tip income. Pursuant to a TRAC agreement, employers agree to:

• Educate the employees about tip reporting
• Establish tip reporting procedures
• Stay current with all employer tax payments and filing obligations

In return for these commitments, the IRS agrees that it will not access FICA taxes due as a result of tip under reporting unless the IRS first examines all of the employees who have under reported tips. The IRS will not initiate any tip audits of employers while the TRAC agreement is in place, but the IRS may continue to conduct individualized tip income examinations of current or former employees.

To satisfy the educational commitment, it is recommended that employers establish a written policy for tipped employees that explains their tip reporting obligations. In addition, employees should receive information regarding tip reporting during their orientation. 

The commitment to establish a procedure to encourage employees to report 100% of their tips can be met by providing employees with the IRS Form 4070 and a written or electronic tip statement on a regular or monthly basis which contains all tips attributable to each employee. The statement must include:

• Employee’s name, address and SS number
• Employer’s Name
• Period Covered and Date Reported
• Total Amount of Tips Received by the Employee
• The Employee’s Signature

The procedure should allow employees to verify or correct the report provided by the employer. However, employers should not provide the IRS with a copy of the statement or report the tips recorded on these statements to the IRS on behalf of the employee.

In order to satisfy the commitment to stay current with tax obligations, employers should implement an internal audit and review process to ensure that employees are complying with the tip reporting policy and procedures. The reality is that employees will not report all of their tips and, as a practical matter, employers cannot force employees to do so. Nevertheless, employers should exercise their best efforts to “encourage” (i.e., nudge, nag and/or discipline) employees to comply with the tip reporting policy and rules.

Conclusion: The inaccurate reporting of tips by employees and employers can result in significant liability for unpaid taxes, interest and penalties for employers. In spite of these potential liabilities, employers should not implement a practice of reporting tips to the IRS on behalf of each employees. To do so, may be detrimental to employee morale and retention. In addition, employers who usurp employee control over how much tip income is reported run the risk of having employees seek advice and/or protection from outside sources, such as a union or an attorney. As such, employers must take care in developing and implementing tip reporting policies and practices.

More information regarding tipped employees can be found at: http://www.wagehourblog.com/admin/mt-xsearch.cgi?blog_id=828&search_key=keyword&search=tips

 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 On June 16, the Department of Labor issued an “Administrator’s Interpretation” addressing the compensability of time spent by employees changing clothes and equipment before and after work (commonly referred to as “donning and doffing). The Interpretation reversed opinion letters on the subject  issued by the Bush administration in 2002 and 2007, and lowered the standard for employees to seek compensation for such activities.

The Interpretation addressed two issues. First, the advisory notes that Section 203(o) of the Fair Labor Standards Act (FLSA), which allows employers to negotiate with a Union to exclude from compensable time certain donning and doffing activities, should be narrowly interpreted. The DOL concluded that time spent “changing clothes” (which can be lawfully excluded under the express terms or by custom or practice under a collective bargaining agreement) does not include time spent donning and doffing safety or protective equipment in the meat packing and other industries. Second, the DOL opined that even non compensable time spent “changing clothes” would constitute the start of the continuous work day, thus making any walking or waiting time after that point compensable.

Employers in industries where workers regularly change clothes, wear safety equipment, or clean up after work should take note of this important change in DOL position, including meat packing, healthcare, manufacturing, and hazardous jobs. Although the decision is aimed primarily at unionized workforces, it has much broader implications. Companies in these industries should:

·         Review any applicable collective bargaining agreements to determine the scope of any agreed upon exclusion (or limitation) of employee compensation for donning and doffing time and seek legal advice on whether such agreement is still enforceable after this Interpretation.

·         For both union and non-union employers, it is critical to conduct an audit of payroll practices to verify the point at which employees don any protective equipment or changes clothes and whether employees are being compensated for all time after this point until the employees change back into street clothes or remove the protective equipment.

·         Employers should not allow employees to change into any specialized work clothing (such as gloves, smocks, or special boots) or don any safety equipment before the shift starts or the intended start of the work day, since this could trigger an obligation to pay employees for all time thereafter (even if they are simply walking or waiting and not performing any work).

·         Employers should review the location of changing areas and their proximity to time clocks to ensure that any walking time after employees have started their work day by donning specialized clothing or equipment is adequately captured in the payroll system.

            If you have any questions, please contact the Co-Chairs of the Firm’s Wage and Hour Sub-practice Group, Michael Kun or David Barron

• Email This
• Print
• Comments
• Trackbacks
• Share Link

By:  Douglas Weiner

The following sounds like a “win-win” situation, doesn’t it? An enthusiastic and energetic individual approaches you with a proposal to volunteer his or her time and services to gain valuable experience in your industry. “After all,” reasons the prospective volunteer, “how can I get my first job if I have no experience in the field of my choice?” Ambitious job seekers may approach an employer volunteering to work as an unpaid “trainee” or “intern” to gain skills, experience and contacts in their chosen field.

However, vigilant employers will not merely accept the prospective intern’s agreement to do volunteer work, but will apply the required legal analysis.  Despite the individual's offer to work for free, the Department of Labor may reclassify the individual as an employee, and require the employer to pay back wages for all hours worked, including overtime.     

An unpaid internship must be primarily for the benefit of the trainee, rather than the employer. Certain employers have established training programs for interns that do qualify for exclusion from the Fair Labor Standards Act. The criteria an employer must satisfy is set forth in Fact Sheet #71: The Test for Unpaid Interns  When all six criteria are met, an employment relationship does not exist under the FLSA, and the federal minimum wage and overtime provisions do not apply to the individual. 

For employers considering an unpaid internship program for one or more individuals, we recommend certain policies, practices and procedures be implemented as precautionary measures.

• Distinguish interns from employees. Create written policies devoted exclusively to the interns; avoid using the same policies and handbooks for both interns and employees.
   
• Review handbooks to remove terminology from written policies that blurs the line distinguishing interns from employees (for example, written policies should not say that an intern is being “hired”, or refer to interns as “Associates” or “Summer Associates” .).
   
• Require a signed written statement from the prospective intern evidencing the understanding that the intern has no expectation of wages, and the employer makes no guarantee of a job at the end of the internship.
   
• Document expense reimbursements, if any, to specific expenses with receipts to evidence that there were bona fide expenses incurred by the intern that were, in fact, reimbursed. Without records the DOL may conclude the “expense reimbursements” were disguised wages.

Conclusion

Employers must carefully assess the benefits, and risks, of managing an unpaid internship. Unless an employer is able to establish that the criteria set forth in Fact Sheet #71 are met, the DOL is likely to find that an intern is an employee who must be paid minimum wage and overtime.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

By: Douglas Weiner

A faculty comprised of Defense counsel and Plaintiffs’ counsel presented strategic insights to those who gathered at the American Conference Institute’s 9th National Forum on Wage Hour Claims and Class Actions. I had the pleasure of moderating a judicial panel comprised of six federal jurists who offered practitioners key insights from their experience in presiding over cases alleging violation of the Fair Labor Standards Act. In addition to the substantive issues of class and collective action litigation, I took the opportunity to ask the judges what tips they had for wage-hour litigators to make effective presentations in their courtrooms. After a lively discussion, led by the Honorable Roger B. Cosby, the consensus of the members of the judicial panel was that practitioners would benefit from the following points:

1. Know the Judge: Judges are not all the same, so find out as much as you can about the District Judge and Magistrate Judge assigned to your case. 
    
2. Know Opposing Counsel: Attorneys are not all the same either. 
    
3. First Impressions Count: The Initial Conference is often your first opportunity to make an impression on the judge. You want to be viewed as “competent” and “reasonable”. 
    
4. There is More Than One Way to Litigate a Wage Hour case: Litigation does not yield to universal, cookie-cutter strategies. If you are successful in simplifying a complex case for the Judge, you assume the role of Trusted Guide.
    
5. Be the Trusted Guide: Many cases are a jumble of disputed facts, conflicting theories and theories of claims. Judges often look for the one thread that will unravel the whole tangled mess. You want to be the person the Court will look to and trusts to show them how to emerge from the legal morass. Your role in this capacity depends a great deal on how the Court sees you from the outset.
    
6. Settlement Conference Submission: If the judge does not ask for pre-settlement conference submissions, ask for leave to submit a short one, and find out whether the court requires them to be exchanged. You want the settlement judge going into the conference with the notion that the outcome you espouse is the fairer one. 

The judicial panel was comprised of Hon. Donetta W. Ambrose, U.S. District Court, W.D. Pa; Hon. Warren W. Eginton, U.S. District Court, D. Conn.; Hon. Raymond L. Erickson, U.S. District Court, D. Minn., Hon. Roger B. Cosbey, U.S. District Court, N.D. Ind.; Hon. Suzanne H. Segal, U.S. District Court, C.D. Cal.; and Hon. Stephen J. Murphy, III, Eastern District of Mich.

Douglas Weiner is a Senior Trial Counsel in the Labor and Employment practice in the EpsteinBeckerGreen New York office. He has 30 years of federal wage-hour litigation experience with the U.S. Department of Labor. As Senior Trial Attorney for the New York Regional Solicitor's Office, Mr. Weiner was the lead prosecutor on many of the Department’s most significant wage-hour and whistleblower cases, including those pursuant to Sarbanes-Oxley and the Fair Labor Standards Act. Mr. Weiner now represents employers in government audits and defends employers in wage-hour class and collective actions.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

by Michael Kun and Aaron Olsen

Already besieged by wage-hour lawsuits, employers with operations in California may see more of these cases, or may be brought into wage-hour litigation where they might not have been before, as a result of a new decision by the California Supreme Court expanding the definition of "employer." The decision creates greater exposure to litigation for those companies that use the services of independent contractors, temporary agencies or other similar entities with whom the employer has a close relationship.

The plaintiffs in Martinez v. Combs were seasonal agricultural workers who picked strawberries for Munoz & Sons (“Munoz”). Munoz sold strawberries through a number of merchants, including Apio, Inc. (“Apio”) and Combs Distribution Co. (“Combs”). The merchants would routinely enter the strawberry fields to describe how they wanted the strawberries packaged and to check the quality of the packaged strawberries before they shipped. The merchants would point out mistakes to Munoz's foreman, as well as directly to the strawberry pickers. After the price of strawberries declined, Munoz failed to pay its strawberry pickers and subsequently declared bankruptcy. In addition to suing their employer, Plaintiffs also sued Apio and Combs for a variety of California Labor Code violations, including failure to pay a minimum wage. The central issue on appeal was whether the strawberry merchants, Apio and Combs, were considered joint employers of plaintiffs under the California Labor Code.

In order to determine whether the strawberry merchants were employers and thus liable for Labor Code violations, the Court examined various definitions of “employer.” After engaging in a lengthy review of 98 years worth of legislative history, the Court adopted the Industrial Welfare Commission’s ("IWC") broad definition of "employer." The Court held that the IWC was authorized by the legislature to define this term as it saw fit, holding that to "employ" someone means: (a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship. In adopting the IWC’s position, the Court rejected defendants’ argument that California law incorporates the “economic realities” test used in the federal Fair Labor Standards Act ("FLSA"). The “suffer or permit to work” definition is the broadest of the three definitions.

The plaintiffs argued that the strawberry merchants, Apio and Combs, “suffered or permitted” plaintiffs to work because they knew plaintiffs were working and the work benefitted the merchants. The Court rejected this argument. The court found that because Munoz, not Apio or Combs, had the power to hire and fire plaintiffs, to set their wages and hours, and to tell plaintiffs when and where to report to work, Apio and Combs did not “suffer or permit” plaintiffs to work. Likewise, although Apio and Combs had representatives in the strawberry fields that gave instructions to plaintiffs, that did not mean that they exercised control over plaintiffs. The court noted that there was no evidence to suggest that Munoz’s employees viewed the representatives of Apio or Combs to be their supervisors. Instead, plaintiffs believed that Munoz and Munoz’s foreman were their supervisors.

Although there will undoubtedly be more litigation about the definition of an employer, Martinez provides useful guidance for companies to evaluate the contracts that they have with their vendors, contractors and temporary employment agencies so that they do not unwittingly become liable for another company’s Labor Code violations. This case illustrates the fine line between conducting quality control over another company’s work product and controlling the conditions of the other company’s employees. Likewise, the case shows how companies can minimize the risk of being classified as "joint employers" if they make it clear in their contract and in practice that the other entity has the sole right to hire, pay, discipline and terminate the workers.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Wage and Hour Division issued new updated regulations for non-agricultural industries on May 19, 2010.  These laws strengthened the restrictions on minors under age 18 working in dangerous occupations or around certain equipment or machinery in the workplace.

A practical chart from DOL showing the differences in the old and new regulations can be found here.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

By Betsy Johnson

On April 1, 2010, the Department of Labor (DOL) launched its “We Can Help” public awareness campaigned aimed at educating workers about their rights under the Fair Labor Standards Act (FLSA). The DOL set up a dedicated website for the “We Can Help” campaign (http://www.dol.gov/wecanhelp/) which provides guidance to employees who wish to file a complaint against their employers for FLSA violations.

On April 26, 2010, the DOL announced a new, enhanced, regulatory and enforcement strategy called “Plan/Prevent/Protect” (http://www.dol.gov/regulations/2010RegNarrative.htm). This new strategy is designed to promote a “safe, secure, and equitable” workplace for all employees and leverages DOL resources across the spectrum of DOL worker protection agencies, including the Wage and Hour Division, and will focus on employer compliance with the laws enforced by the DOL.

Given the spotlight placed on employee education and employer compliance by these DOL initiatives, companies are likely to see an increase in DOL and state agency enforcement proceedings and an increase in individual civil actions and class action litigation involving wage and hour claims for the foreseeable future. 

California continues to be at the forefront of the wage and hour litigation wars, and the issue of the proper classification of employees as “exempt” or “non-exempt” remains an active battleground in the state and federal courts, as well as in proceedings before the California Division of Labor Standards Enforcement (DLSE). 

It should come as no surprise to most human resource professionals and in-house counsel that California utilizes a different test for determining the “white collar” exemptions (executive, professional and administrative) than is utilized under the FLSA. However, employers who are unaware of or ignore the differences between California law and the FLSA regarding the “white collar” exemptions are exposing their companies to significant liability for unpaid overtime, “off the clock” work, meal/rest periods, uniform violations, improper deductions and record keeping violations under California law.

Under both the FLSA and California law, the employer has the burden of proving the one of the exemptions applies—establishing exempt status is an “affirmative defense” in wage/hour litigation. Walling v. General Industries Co., 330 U.S. 545, 67 S.Ct. 883 (1947).  Job titles are immaterial to a determination of exempt status. Therefore, we recommend that employers conduct an internal “audit” of the actual job functions of the employees in question before classifying them as “exempt,” under either the FLSA or California law. 

Recently, a client asked us to develop a “user friendly” comparison of the FLSA and California “white collar” exemptions. While nothing is really “user friendly” when it comes to California wage and hour law, we developed the chart below to provide some basic guidance for our client and wish to share it here.

 Important Note: Where the California statutory, regulatory or case law are more employee-favorable than the FLSA (which is most cases), the California rules will apply. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

By Betsy Johnson

A client recently asked us to provide them with a summary of the California rules paying non-exempt employees for “on-call” time. Our client requires non-exempt maintenance employees to carry cell phones and/or pagers after hours and on weekends so they can respond to requests for assistance and emergencies at the facility which operates on a 24/7 basis. The employees are required to respond to a call or page within 10-15 minutes and to be available to go to the facility immediately if necessary. The questions presented were: 1) whether these employees should be paid for the time spent carrying the cell phone or pager and 2) is there a minimum amount of pay the employees must receive if they are required to report to the facility. We thought that it would be helpful to share our thoughts here. 

The Fair Labor Standards Act (“FLSA”) and the federal regulations provide that “[a]s a general rule the term ‘hours worked’ will include: (a) All time during which an employee is required to be on duty or to be on the employer’s premises or at a prescribed workplace and (b) all time during which an employee is suffered or permitted to work whether or not he is required to do so.” (29 CFR §778.223).

There is a substantial difference between the definition of "hours worked" adopted by the California Division of Labor Standards Enforcement (“DLSE”) and that used by the Department of Labor (“DOL”) under the FLSA. Under California law, it is generally only necessary that the worker be subject to the "control of the employer" or "all the time the employee is suffered or permitted to work" in order to be entitled to pay.   These two phrases operate independently of each other, so that if time falls into either category, it must be counted as hours worked.  

See IWC Wage Orders, Section 2(K), Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 584 [citing to DLSE Opinion Letter (“O.L.”) 1993.03.31]. Please note, that there is a different definition for employees in the Health Care Industry and for employees who are required to reside on the employer’s premises. 

Standby Or Waiting Time.  Under both federal and state law, an employee who is required to remain on the employer’s place of business and respond to emergency calls is working and must be paid for all hours – even if the employee is doing nothing more than waiting for something to happen.  See Armour & Co. v. Wantock, 323 U.S. 126 (1944). However, the standby time can be paid at a different hourly rate from the regular rate paid for working time, provided that the standby rate is set before the work is performed and the standby rate is at least minimum wage ($8.00 per hour). See O.L. 2002.02.21.  For purposes of overtime computation, where two or more rates are used, California requires that the “weighted average” method for overtime calculation be utilized to determine the regular rate of pay.

Uncontrolled Standby. An employee who must be available to respond to a request by the employer to return to work for an emergency may be on uncontrolled standby if the employee is completely unrestricted to use his or her time for their own purposes. Such "free" standby time is not under the control of the employer and, thus, need not be paid.

Controlled Standby. If the employee's time is so restricted that she cannot pursue personal activities and come and go as she pleases, the employer is considered to have direction and control of the employee. The DLSE has adopted the test which the California Supreme Court announced in the case of Madera Police Officers Assn. v. City of Madera (1984) 36 Cal.3d 403, and will apply that test to determine the extent of control.

The Madera court applied a two-part preliminary analysis to determine whether the time was compensable. The first part of the test measures whether the restrictions placed on the employee are primarily directed toward the fulfillment of the employer's requirements and policies. Second, is the employee substantially restricted so as to be unable to attend to private pursuits? 

Regarding the second prong of the test, the Madera court also indicated that the trier of fact must examine the restrictions cumulatively to assess their overall effect on the worker's uncompensated time. In other words, the net impact of the restrictions must be considered. Note that the court did not hold that no restrictions as to time and space could be placed on the employee; only that the restrictions could not be substantial enough to prevent the employee from attending to private pursuits. 

The factors to be considered in determining whether an employee is on controlled standby are similar to the federal guidelines and include:

(1) whether there are excessive geographical restrictions on employees' movements; (2) whether the frequency of calls is unduly restrictive; (3) whether a required response time is unduly restrictive; (4) whether the on-call employee can easily trade his on-call responsibilities with another employee, and (6) the extent of personal activities engage d in during o n-call time. (O.L . 1998.12.28)

The simple requirement that the employee wear a cell phone, pager or beeper, standing alone, does not require that the employee be paid for all the hours the device is on. Additionally, the DLSE does not take the position that simply requiring the employee to respond to call backs is so inherently intrusive as to require a finding that the employee is under the control of the employer. Such factors as (1) geographical restrictions on employee's movements; (2) required response time; (3) the nature of the employment; and, (4) the extent the employer's policy would impact on personal activities during on-call time, must all be considered.

The bottom-line consideration is the amount of "control" exercised by the employer over the activities of the employee. In some cases, the employer can be said to be exercising some control over his employee at all times. For instance, the "duty of loyalty" found in Labor Code §2863 requires that employees give   preference to the business of his employer over any personal business of the employee. However, such attenuated "control" does not give rise to an obligation to pay the employee. However, once the employer exercises immediate control over the employee's activities, the employee must be compensated for this time. (O.L. 1993.03.31, 1992.01.28)

Response and Reporting Time Pay.  If the employee is required to respond to a call or page, all time spent by the employee answering questions or otherwise responding via phone and/or computer is compensable time and must be paid. Employees must keep accurate records of these hours worked. Under California law, only de minimus work (defined as a “minute or two” during the entire workday-not per response) does not have to be paid.

If the employee is required to report to the employer’s facility, the provisions of California’s “reporting time” rules may apply. Section 5 of each IWC Wage Order provides:

(A) Each workday an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee's usual or scheduled day's work, the employee shall be paid for half the usual or scheduled day's work, but in no event for less than two (2) hours nor more than four (4) hours, at the employee's regular rate of pay, which shall not be less than the minimum wage.

(B) If an employee is required to report for work a second time on any one workday and is furnished less than two (2) hours of work on the second reporting, said employee shall be paid for two (2) hours at the employee's regular rate of pay, which shall not be less than the minimum wage.

(C) The foregoing reporting time pay provisions are not applicable when:

(1) Operations cannot commence or continue due to threats to employees or property; or when recommended by civil authorities; or

(2) Public utilities fail to supply electricity, water, or gas, or there is a failure in the public utilities, or sewer system; or

(3) The interruption of work is caused by an Act of God or other cause not within the employer's control

(D) This section shall not apply to an employee on paid standby who is called to perform assigned work at a time other than the employee's scheduled reporting time.

If the employee is on a paid standby and is called to work, the reporting time pay provisions do not apply. In order to qualify as paid standby, the hourly wage for the standby time which has been agreed to or, absent a specific agreement, at the employee's regular rate of pay must be paid.   If the employee is on unpaid standby and is called to work, the reporting time requirements kick in and a minimum of 2 hours of pay is required.

Employers who employ non-exempt employees in California are cautioned to review their pay practices as they relate to “on-call” time for their California employees.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

By Douglas Weiner and Brian Molinari

In the current economic downturn, competition for desirable positions of employment is keen. Ambitious job seekers may approach an employer asking for an unpaid position to gain experience, skills and contacts. While such a relationship may prove mutually advantageous, employers should remember that the DOL recently emphasized the FLSA’s compensation requirements apply to employees who are required or allowed to work. The terms “to suffer or permit to work” have been construed expansively in order to effectuate the broad remedial purposes of the Act.

Volunteering Does Not Mean Waiving

It has been determined that employees subject to the Act may not choose to “decline” the protections of the Act by performing activities characterized as “volunteer” services. Tony and Susan Alamo Foundation v. Secretary of Labor, 471 U.S. 290, 302 (1985). In that case, the Supreme Court was concerned that unless employees were barred on a general basis from “volunteering” to perform any services for their employers there would be potential for the coercion of uncompensated services, to the detriment of the purposes of the Act. The Court did not wish to allow the prohibition against employees waiving their protections under the Act to be circumvented by characterizing work as “volunteer” services, citing Barrentine v. Arkansas-Best Freight System, Inc., 450 U.S. 728 (1981) and Brooklyn Savings Bank v. O’Neil, 324 U.S. 697 (1945). Accordingly, covered and non-exempt individuals who are “suffered or permitted” to work must be compensated under the law for the services they perform for an employer. Thus, internships in the “for-profit” private sector will most often be viewed as employment, unless the test described below relating to trainees is met.

Fact Sheet #71: The Test For Unpaid Interns

Individuals who participate in “for-profit” private sector internships or training programs may do so without compensation, according to DOL, only under certain circumstances. Whether an internship or training program meets this exclusion depends upon all of the facts and circumstances of each such program.

The following six criteria must be applied when making this determination:

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;

2.                  The internship experience is for the benefit of the intern;

3.                  The intern does not displace regular employees, but works under close supervision of existing staff;

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;

5.                  The intern is not necessarily entitled to a job at the conclusion of the internship; and

6.                  The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If all of the factors listed above are met, an employment relationship does not exist under the FLSA, and the Act’s minimum wage and overtime provisions do not apply to the intern. 

Accordingly, employers must tread carefully when entertaining what is certain to be many offers from job seekers to work as an unpaid intern. Unless all 6 factors above support an unpaid internship, individuals working for “for-profit” employers typically must be paid at least the minimum wage and overtime compensation for hours worked over forty in a workweek.

• Email This
• Print
• Comments
• Trackbacks
• Share Link