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Unpaid internships are back, with the Labor Department's blessing

Unpaid internships are back, with the Labor Department's blessing
Led by Alexander Acosta, the Labor Department changed the rules on unpaid internships. (Jim Lo Scalzo / European Pressphoto Agency)

The U.S. Labor Department rolled out new guidelines this month that make it easier for companies that want to hire interns but don't want to pay them.

The new rules establish a "primary beneficiary test" that ratifies programs that help the intern more than the company. Seven factors determine whether the gig meets the standard. One says internships should provide training that "would be similar to that which would be given in an educational environment." Another says the intern's job should complement, not displace, the work of paid employees.

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Unlike the previous standard, an unpaid internship doesn't necessarily have to meet any prescribed threshold related to those seven factors. Each internship program will be justified on its own merits, a more forgiving benchmark for employers.

"This standard that the department is setting forth is easier for companies to satisfy in terms of internships qualifying as unpaid," said Paul DeCamp, an attorney at Epstein Becker & Green who works with employers.

The old test was six factors, one of which prohibited employers from deriving "immediate advantage from the activities of the intern." Companies found that standard overly rigid, arguing that it was difficult for most internships to meet that requirement.

"If the intern did any productive work for the company it would — at least based on the strict reading of the test — be required that activity be paid, which is, not to put too fine a point on it, ridiculous," DeCamp said.

The new federal guidelines apply in California, as the state doesn't have policies or case law on the topic, said Shadie Berenji, an attorney specializing in labor and employment.

The change is a response in part to a string of intern lawsuits starting in 2011, when two former interns at Fox Searchlight Pictures filed a lawsuit alleging that their employer violated the Fair Labor Standards Act by not paying them for work they did on the movie "Black Swan." In 2013, a court ruled in their favor, finding that their roles fell short of the Labor Department's six criteria for unpaid internships.

That decision was reversed in 2015 by the U.S. 2nd Circuit Court of Appeals in New York, which found the government's standards too rigid. The court established its own criteria, and that became the basis for the new Labor Department rules. (The Fox Searchlight interns settled with the company for amounts ranging from $495 to $7,500.)

Eric Glatt, one of the plaintiffs in the Fox Searchlight case, said he had mixed feelings about the new guidelines. Although they give new latitude to companies that don't want to pay interns, they may also improve the training and education that interns get.

"I don't like the legal implications of this new test," Glatt said. "But the practical implications may make the kinds of internships that I did" — entry-level jobs disguised as educational opportunities — "go away."

DeCamp also suspects fewer companies will rely on interns for menial tasks and little else. "If the intern is primarily doing grunt work — not learning skills, not learning about the industry, but is simply replacing work that would've been done by paid employees and therefore amounting to nothing other than free labor and with no discernible benefit to the intern — I think courts would still be willing to say that is employment," DeCamp said.

But some labor advocates worry that under the new guidelines, a company can justify any program, no matter how basic, as benefiting the intern.

"You could say working in the industry, even if you're doing relatively mundane tasks, gives you some knowledge of how the industry works," said Patricia Smith, senior counsel at the National Employment Law Project.

For example, a lawsuit filed by interns at Hearst Corp. argued that they did menial work with no supervision or formal training. The judge ruled in favor of the media company, noting that many of the interns aspired to careers in fashion and entertainment and that one had accomplished her goal of having "real-life experience" in her field.

After the wave of lawsuits, many companies, especially in media, started to pay their interns, and the new rules won't necessarily reverse the trend. "It's safer," DeCamp said. "If it's at all in doubt, just pay minimum wage."

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Greenfield writes for Bloomberg. Los Angeles Times staff writer Alejandra Reyes-Velarde contributed to this report.

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