On April 7, 2010, the California Department of Industrial Relations (DIR) Division of Labor Standards Enforcement (DLSE) issued an Opinion Letter, addressing the criteria used to determine whether a student intern or trainee who performs some work as part of an educational or vocational program is exempt from state wage and hour laws. This new opinion letter brings California’s criteria for classifying interns in line with federal standards.
Both federal and state law provide minimum wage, overtime, and other protections (such as working conditions, meal and rest periods, call-in pay, etc.) to employees. The definitions of an “employee” are sometimes confusing. Typically, an “employee” is anyone who is “employed by an employer.” To “employ” someone is defined as “to engage, suffer, or permit to work.” What this means is that an employer can create an employment relationship not only by proactively requesting that the person perform services, but also by allowing the person to perform services that benefit the employer. It can be a gray area. To further complicate matters, just because an individual agrees to work without pay, does not necessarily exempt the employer from the liability to pay wages. Workers are not free to waive their legal rights to minimum wage or overtime.
The definition of “volunteer” is very narrow. The DLSE has long taken the position (see their Opinion Letter 1988.10.27) that in certain circumstances, an individual who intends to donate his/her time purely gratuitously as a volunteer to a religious, charitable, or non-profit organization may be classified as a “volunteer” as long as the individual intends to volunteer his/her services for public service, religious, or humanitarian objectives, not as an employee, and without contemplation of pay. However, when religious, charitable, or non-profit organizations operate commercial enterprises available to the general public, such as thrift stores or restaurants, or when these organizations provide personal services to businesses, these individuals should be classified as employees and paid at least minimum wage and overtime, if applicable.
Too often, employers hire students and make the assumption that because they’re attending school and the job will provide for some level of instruction and training, the students can be unpaid interns. Unfortunately, in most cases, these employers are violating federal and state wage and hour laws, even if the students are happy to work for free.
In the past, the DLSE used an 11-factor test to determine if trainees/interns were exempt from California minimum wage coverage in the absence of a state statute or regulation on the matter. The federal Department of Labor used a 6-factor test that was derived from a U.S. Supreme Court decision. With this most recent DLSE Opinion Letter, California will now align with the federal 6-factor test as follows:
1. The training, even though it includes actual operation of the employer’s facilities, 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, but work under their close observation;
4. The employer derives no immediate advantage from the activities of trainees or students, and on occasion the employer’s operations may be actually impeded;
5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and
6. The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.
Please note that this new 17-page Opinion Letter (DLSE Opinion Letter on Educational Internships) demonstrates that the DLSE did a detailed review of each and every factor described above, and analyzed all of the facts and circumstances of the particular program in question. The bar was held quite high. Note criteria #3 above, which would mean that if you hire a “student intern” in lieu of an employee in a regular job, you will probably fail the test. Note that #4 requires that the employer derive no immediate benefit from the work being done by the interns and may even need to show that having the intern actually caused a disruption to business operations!
While there do exist several formal programs within the state for student internship programs (Work Experience Education), employers need to be aware that the above factors will still need to be respected in order for the internship to be unpaid.
For purposes of workers’ compensation, anyone rendering services, regardless of being called an employee or an intern, is presumed to be an employee and eligible for workers’ compensation benefits. Additionally, unless the company can prove that the individual meets the narrow definition of “volunteer” described above, he/she will most likely be entitled to workers’ compensation benefits in the event of an injury.
In summary, we urge our clients to be very cautious in this area. Misclassifying a worker can create significant liability, which may subject a company to penalties, back pay, overtime, and unpaid employment taxes that can go back as far as 3 or 4 years.
If there is any doubt as to the validity of the worker truly being a volunteer or an intern, a safe approach would be to pay the person at least minimum wage, or perhaps even the sub-minimum apprenticeship wage that is permissible under state law in very narrowly defined circumstances.
As always, Vantaggio is here to help you not only with compliance, but any of your HR needs. Please call us if you require help in establishing or administering an internship program.
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