A Primer on California Internship Laws
Staying informed about the legal landscape relating to California internships is important for all employers as well as all persons involved in hiring interns. The legal framework applicable to internships does not, and cannot, cover all situations or circumstances—e.g., there are unique state laws that apply to internships in Montana that do not apply to those in California, etc., etc.—but it is crucial to have a good grasp of the general legal principles that apply to California internships. The information below is a very general overview of California internship laws, and it is provided with a simple goal in mind: to help employers make good decisions about their internships and possibly avoid costly disputes over misclassifying interns as "trainees" or "employees." As a side note, the U.S. Department of Labor ("DOL") has issued a Fact Sheet 71, setting forth its own broad framework for determining whether interns are exempt from the Fair Labor Standards Act’s ("FLSA") wage and hour laws. The California Division of Labor Standards Enforcement ("DLSE") also has issued its own set of factors to consider when deciding whether interns are entitled to compensation under California law (pursuant to California state labor laws).
It is important to understand that both the DOL and the DLSE’s test are not tailored for California law—namely, the DOL’s test applies to all interns across the country while the DLSE’s test is only applicable in California . The key to the California law is that the DLSE has set forth a general principle applicable to California internships, which states: A person who is participating in an educational program, or is being provided training pursuant to an individual or group of occupations, may volunteer his or her services to an organization on a part-time basis without expectation of being paid wages, in exchange for an opportunity to gain valuable experience by performing duties that contribute to but do not displace work for the organization, nor should such activities be similar to that which would be performed by an employee.
The DLSE set forth this general principle and then provided a four-factor test under which each of the following must be met to avoid being considered an employee and thus avoid any wage requirements:
Whether an internship satisfies the DLSE’s above general principle and four-factor test depends on the nature of the relationship between the intern and the employer. For example, if the intern is really just doing busy work that is useful only to himself/herself, then the "training" requirement might not be met. And, if the intern is really doing the work of an employee then clearly the "displacement" and "narrow" requirements would not be satisfied.
Considering the foregoing, one can imagine there are a number of situations in which there are reasonable doubts about whether the intern is really an intern. For this reason, employers should always strive to ensure that their interns are actually getting valuable training and are being exposed to the real-world situation they are preparing for, which would help strengthen the argument that they have not displaced regular employees. Likewise, employers should work with their interns to ensure that they are meeting the other criteria set forth above, as this could further help their position on this matter.
Defining Internships in California
Internships for college students and recent graduates have been on the rise in California within the last decade, and with this rise, increased scrutiny has fallen on the legal distinctions that exist between a paid employment position and one merely providing academic credit to the intern. California law is actually unclear regarding the definition of internships and whether companies choose to compensate their interns. There are therefore some gray areas which places companies at risk of being subjected to costly lawsuits.
The Legislature generally defines an Internship program as a program whereby students receive practical, hands-on work experience in a profession, at the conclusion of which, they may receive academic credit (or just be recognized for their participation). Generally, students must receive college or university credit for the hours spent in the position. The pay status of the intern is not usually defined in the context of the Internship.
The "ABC Test" is used to determine whether an individual is an independent contractor or an employee under most California wage orders, and is used by the state courts to distinguish between employees and interns. The ABC test requires that a worker meet all three of the following conditions to be classified as an independent contractor:
- The individual is free from the control or direction of the employer in connection with the performance of the work in question.
- The individual performs work that is outside the usual course of the employer’s business.
- The individual is customarily engaged in an independently-established trade, occupation, or business.
This primacy of the "ABC Test" in determining proper classification of an intern has left some companies scrambling to re-classify their interns following guidance from the letter of the law – but does not provide a clear answer to the work of a California Internship.
Requirements for Exempting Unpaid Interns From Compensation
In 2010, DOL issued a new Fact Sheet for unpaid interns. When looking at the criteria of "Training" it is clear that the DOL is considering the effect on the Intern:
The fact that an intern or student may, to some degree, be disadvantaged by not receiving wages cannot be denied. But such a disadvantage may nonetheless be consistent with the Fair Labor Standards Act (FLSA). For example, an intern may receive college course credits for the time spent in an internship, benefit in terms of future employment opportunities, or receive other tangible benefits.
Further, the 7th Circuit listed 6 factors of which only one was whether the Intern benefitted disproportionately more than the employer, but then noted that this factor alone is not dispositive:
The focus, rather, is on what the intern receives in return for his work, rather than what he pays.
The U.S. Department of Labor (USDOL) has laid out six requirements for an intern to be considered unpaid under the FLSA:
Based on these facts, the USDOL, when all of the circumstances of the activity are considered, the factors below indicate whether the intern or the employer is the primary beneficiary of the relationship. Where the employer derives no immediate advantage from the activities of the intern and on occasion its operations may actually be impeded by the activities of the intern, such circumstances suggest that the students are not working for their own advantage. Conversely, where an intern is placed in an internship program that provides training that would be given in an educational environment along with the benefit of clinical and other hands on experience, the more an internship program is similar to the training which would be given in an educational environment, the more likely it is that an internship is a legitimate educational activity.
While each situation must be evaluated based on the above guidelines, note that the "primary beneficiary" test is not a bright line rule. No single criteria will preclude "unpaid" status. A number of factors must be considered.
Employer’s Obligations Under the Law
When an employer offers unpaid internships in California, they assume important legal obligations. Here are a few of them:
Contracts: Offering internships should be formalized in a written offer letter that outlines precisely the terms and conditions of engagement. In particular, the letter should make clear that the internship is unpaid. Ideally, the intern and the employer would sign the offer letter, although the law requires that a copy simply be provided to the intern. The letter should include a description of duties, the days or hours of work, and the beginning and expected dates of the internship (the internship can be for any length of time, although a Staff Attorney position was recently denied in California because it was determined that the duration of the engagement was not long enough to be considered an internship). The letter should also clarify that the intern is not entitled to participate in the benefits plans of the company. It is also helpful to explicitly indicate the number of positions that the company has available for unpaid interns. Additionally, all employers who offer such internships should have interns read and sign their employment policies (i.e., Code of Business Conduct) for additional exposure from the intern and to protect that information in the event of litigation. Finally, as there have been cases in the past in which employees have offered to pay back wages in exchange for an iota of clarity on the application of California law, all employers should be in the business of documenting "good faith" compliance.
A Safe Workplace: California employers have obligations to provide all employees with a safe workplace and appropriate safety equipment, as well as with instruction on the proper use of personal protective equipment. This extends to interns, who are considered employees within the meaning of California’s Occupational Safety and Health Act (Cal/OSHA). However, interns are not subject to California’s workers’ compensation laws. In addition to the employer’s obligation to provide a safe workplace, federal law also governs the safety of employees and interns. Two agencies provide the bulk of these protections – the United States Department of Labor’s Occupational Safety and Health Administration (OSHA) and the National Institute for Occupational Safety and Health (NIOSH).
Obtaining Compliance: If an employer offers unpaid internships, it would be prudent for the employer to obtain legal advice regarding whether the proposed internships are eligible for participation under the FLSA and California law before exposing itself to potential litigation.
Interns’ Rights and Employer Protections
Because interns are employees covered under California’s employment laws, they enjoy all of the same rights and protections as other employees, including rights regarding workplace discrimination and harassment. California law prohibits employers from discriminating against interns based on "protected status" such as those listed above.
This means that interns cannot be fired, demoted, or have their internship terminated or modified in any other manner because of their age, race, religion, sex, or sexual orientation. They also cannot be disciplined for complaining about discrimination, nor can they be treated differently because of a protected characteristic.
Similarly, California law prohibits employers from subjecting interns to workplace harassment. This means that interns have the same rights against verbal, physical, and visual harassment as duly employed workers. Thus, employers cannot allow interns to be verbally or physically abused based upon their protected status, including harassment based on sexual advances or conduct.
Interns can file charges of workplace discrimination or harassment with the California Department of Fair Employment and Housing or the Equal Employment Opportunity Commission. They may also sue their employer in both state and federal court. If successful, interns can recover damages for lost wages, benefits, medical bills they incurred as a result of the discriminatory or harassing conduct, and even emotional distress damages. Furthermore, employers found to have unreasonably discriminated against interns or subjected them to abusive conduct may have to pay punitive damages as well as punitive damages.
In addition, interns must be paid for the time they spend participating in an interactive process to determine whether they require a reasonable accommodation and to be able to perform their job duties.
In addition to the protections granted at the state and federal levels, some cities and counties in California provide additional protections for interns. For instance, Los Angeles County and the City of Los Angeles have adopted local laws protecting interns and apprentices. Some local laws may provide greater rights for interns, while others may not extend legal protections to unpaid interns such as unpaid college students.
Internships as Distinct from Employment
The most significant characteristic of an internship as opposed to an employment is that the intern is in a learning mode and is acquiring information which increases future job opportunities. The intern may not be paid at all or may be paid less than the minimum wage as long as an equity and real benefit is provided to the employer.
Intern is not an employee and does not have employee rights such as sick leave, vacation, insurance, or anything of that nature. Schooling or training that primarily benefits the intern will be characterized as an internship. That is one example of when the intern will not be considered an employee. If the intern is unpaid , he/she will have no payroll tax liability. Additionally, interns are not entitled to the usual benefits and protections that an employee receives, such as overtime, meal and rest periods, termination pay, etc. Unlike employees, interns are not covered by Employment Development Department (EDD) regulations with respect to unemployment or disability, either.
If the intern has a regular job for the employer and is working without pay under the guise of being an intern, that person is really an employee even if they are a trainee. It is critical that the employer not improperly classify the employee as an intern.
Penalties for Violating Intern Requirements
Aside from the aforementioned nonlegal, soft consequences, such as a tarnished reputation and non-practical business considerations, there are actual, legal consequences to the failure to comply with California internship laws, including the following:
Independent contractors
If an employer misclassifies an intern as an independent contractor and fails to pay him or her wages, compensation may be sought through the California Division of Labor Standards Enforcement (DLSE). The DLSE will examine the worker’s application of independent contractor status and the nature of the work. Should the worker prevail, the DLSE will order the employer to pay the worker all unpaid wages, interest and applicable penalties. If the employer refuses to pay the amount ordered by the DLSE, a worker can then file a lawsuit in civil court seeking collection of the judgment.
Wage violations
The primary consequence for failing to pay interns is payment of back wages. Additionally, failing to pay wages due to minimum wage violations, unlawful deductions from wages, and subsequent failure to pay those wages or deductions within the "grace period" entitles the employee to recover statutory waiting time penalties of up to 30 days’ wages, plus pre- and post-judgment interest at the legal rate.
Some other consequences of non-compliance include:
Paine v. Grubhub Inc.
Although this case is currently pending settlement approval by the Court, it serves to illustrate how the consequences of non-compliance apply to California’s high profile employers. In this case, the plaintiff Anthony Paine filed a lawsuit against the food delivery service Grubhub, Inc., alleging that he and several other current and former delivery drivers were not properly compensated for all of the time they spent working for the company. The lawsuit also claimed that Grubhub had paid the drivers an hourly rate, which the plaintiff believed was an above-market rate, and also stated that all the drivers considered themselves independent contractors.
The lawsuit claimed that Grubhub improperly classified them as independent contractors instead of employees, and failed to compensate them for overtime work, breaks, and meal times, and failed to pay them at least minimum wages. The complaint also alleged violations of the state’s Unfair Competition Law and the Private Attorney Generals Act.
The lawsuit was filed in California Superior Court in 2015, and in 2017, the case was certified as a class action.
On June 14, 2018, the Judge approved a $5 million dollar settlement for all of the class members. The employment status of the plaintiffs remains undecided, and in August, a petition was filed in the United States District Court for the Northern District of California to determine whether the settlement agreement is not unfair to the named plaintiffs and the rest of the class members.
Further, although the outcome of this case is presently unknown, it is likely that the plaintiffs’ claims regarding misclassification of their employment status are going to result in monetary damages.
Best Practices for Hiring and Managing Interns
Employers should assume that these or similar requirements will be found in other interns’ programs and make assumptions about these interns’ work, pay, and other terms of employment at their own peril. The best practices referenced in this article are geared toward making administrative compliance as easy as possible—developing a few basic policies and sticking to them could save employers considerable trouble and expense, especially since conforming with California law avoids liability and noncompliance can lead to substantial liability.
It is certainly possible to break down the administration of interns’ jobs and this article’s central points into components, such as: (1) job descriptions, (2) the intern’s initial application, (3) the interview (a series of questions focused on the status of the internship), (4) review of intern’s wage and hour records, and (5) a review meeting in which the intern, the supervisor, and the company’s lawyer discuss the legality of the internship and the steps the intern and the employer have taken to comply with California law.
Internship policies should include:
- Clear statement of purpose: this should be a brief paragraph, one that describes the goal of the policy, what is being protected and how, and the fundamental principles guiding the policy. This should be a simple "mission statement" of sorts, and may be as simple as stating the company’s commitment to supervising internships.
- A clear and concise description of the key elements of the policy. This should include (1) a brief description of what counts as an internship (this is often a simple restatement of the elements of an internship set out in the DOL and DLSE Fact Sheet, for example), and (2) who at the company has the authority to approve or deny internship requests (example: HR/Legal/CEO).
- A clear description of how interns are to be managed and where to turn if they believe the employer is failing to administer the program as outlined.
- A uniform set of forms for documenting the internship.
This policy should be distributed to all supervisors, interns, and prospective interns; it should not be given only to applicants or interns, it should be provided to supervisors and any other personnel who might have anything to do with interns. Further, the policy should be distributed anytime there is a position available for an intern, and with every request for an interns resume. The reason for the distribution should be clearly noted. For instance, "company policy requires that all prospective interns receive a copy of the company’s internship policy." This should not, obviously, be confused with the "internship program enrollment form" described below, which should include a whole host of legal status waiver/release language the prospective intern signs to indicate he or she understands the nature of the internship and agrees to the terms of the policy.
Helpful Resources
California Bureau of Labor and Industries (BUL): The BUL provides comprehensive information regarding labor laws in California. Visit their website [here] for more information. The BUL can also provide assistance with a range of employment law issues.
U.S. Department of Labor: The Federal government has published fact sheets explaining the FLSA and internships, and the concept of interns as "trainees." The fact sheets can be found [here]. Members of the U.S. Department of Labor are available for further support and assistance . Call 1-866-4-USWAGE (487-9243) or visit [here].
California Wage Orders: The California wage orders define the various industries and specific seniority, length of service, and production work necessary to determine whether a worker is an intern or an employee. A copy of the wage orders can be found [here].
California Department of Fair Employment and Housing (DFEH) : For more information on any California civil rights issue including harassment and discrimination, visit the DFEH website [here].