We are dealing with an economic climate and legal job market in which the supply of legal talent seemingly outweighs the demand by employers for same. This new economy has given rise to a somewhat unforeseen and mostly unwelcome byproduct – an increase in the number of private, for-profit organizations that seek to “hire” law students without pay. While there may be a great temptation for an organization to take advantage of a free source of labor – and an equally great temptation for a student who is eager to accept such a position because of the professional experience that can be gained and the belief that permanent employment may result- there are potentially significant risks to employers, particularly for-profit employers such as law firms, that engage the services of students without pay. The key issue for the employer? Whether the student qualifies as an “employee” under the Federal Fair Labor Standards Act (“FLSA”) (and/or the New York State Labor Law) and is thus entitled to earn minimum wage.
Under FLSA, “any individual employed by an employer” is considered an employee and is thus entitled to earn the minimum wage. However, case law has established that there are circumstances where an individual can render services to an employer and not be considered an employee and, thus, not be entitled to compensation. The US and New York Departments of Labor focus on six criteria that are to be used to determine whether someone is an employee and, thus entitled to be paid minimum wage, or is merely a trainee who is not an employee for purpose of minimum wage requirements. A New York State Department of Labor Policy Statement provides that a “trainee” is not an employee if all of the following criteria are met:
1. The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school.
2. The training is for the benefit of the trainees or students.
3. The trainees or students do not displace regular employees and any work they may do is under close supervision.
4. The employer that provides the training derives no immediate advantage from the activities of the trainees or students, and on occasion operations may actually be impeded.
5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period and are free to take employment elsewhere in the same field.
6. The trainees have been notified, preferably in writing, that they will not receive wages for such training and are not considered to be employees for minimum wage purposes. The Policy Statement also states that the determination as to whether a student or trainee is considered an employee will depend upon all the circumstances surrounding their activities on the premises of the employer.
Recent conversations with representatives of the New York State Department of Labor point to items 2 and 4 above as being the most problematic for law firms that wish to hire law students as unpaid interns. For example, if a firm bills its client for the work performed by the law student, the training is clearly not solely for the benefit of the student and the employer is deriving an immediate advantage from the activities of the student. In such a situation, DOL representatives have affirmatively stated that the firm would be required to pay at least minimum wage to the student for the services s/he rendered to the firm.
Conversely, DOL representatives affirmed that an employer would not be required to pay minimum wage to the student if the student received academic or “externship” credit in exchange for the services rendered to the employer. In theory, this appears to be a simple and workable solution – the student receives valuable academic credit in lieu of payment, and the employer receives the benefit of the student’s services. In practice, however, the situation is far murkier. Many law school externship programs are geared toward placements with public interest or not-for-profit entities. For these law schools, the placement of students in externships with for-profit organizations – particularly law firms – is permitted only to enable a student to take advantage of a particular opportunity that cannot otherwise be duplicated by placement with a not-for-profit entity. In most situations, however, much of the substantive legal experience a student can gain in a law firm can also be gained in a not-for-profit setting. As a result, it is often very difficult for a student to obtain academic credit in a law firm setting. And if the student cannot receive academic credit in exchange for services rendered to a law firm, it will fall upon the firm to otherwise ensure compliance with FLSA and DOL policy if it wishes to engage a student as an unpaid “trainee” rather than as an employee who is entitled to receive minimum wage. At a minimum, to comply with DOL policy, a private law firm should not bill its clients for work performed by an unpaid intern. Law firms should also provide unpaid interns with substantive training and close supervision.
Martha Krisel is Chief Deputy County Attorney for Special Projects, Office of the Nassau County Attorney.
Michael Ende is an Assistant Dean for Career Services at Hofstra University School of Law.
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