California Unpaid Internships: Are They Permitted?

Unpaid Internships Explained

Internships have become a preferred way for many employers to obtain work from potential employees while minimizing labor costs. While labor costs are an important consideration to employers, this can have a negative impact on the employee. The intern often gains little or no experience and the internship often does not lead to permanent employment. Wage claims related to internships continue to plague employers as interns seek to recover for unpaid wages. The FEHA has taken a special interest in unpaid internships and gained several referrals from the U.S. Department of Labor.
So what is an unpaid internship? A casual Google search will tell you that it is a temporary position with an emphasis on on-the-job training rather than merely employment. On-the-job training is where an intern learns about an industry or profession by working. Employers typically expect interns will use their experience to apply for entry-level positions and gain experience for future employment. While employers do not expect much of interns they expect them to perform work assigned to them. The employer expects the intern to complete duties, to be punctual , and be generally professional. Interns are often eager to make the best impression and may be less inclined to raise concerns about injury or unfair treatment at work.
Interns may concern themselves with how the internship looks on their resume. Experienced interns may also be less inclined to seek clarification from the employer for fear of looking incompetent or unqualified. Interns who lack experience may equally be hesitant to disclose information regarding workplace injuries or other discriminatory conduct for fear it will jeopardize their chances at potential employment. Some interns view the experience as a foot in the door in an otherwise competitive job market. Many interns are young and are less likely to be aware of workplace rights and protections. Interns may also worry that speaking out will negatively impact their internship experience and prevent them from obtaining the desired job.
Interns are often at the bottom of the totem pole and may be the last to learn about alleged suspicious conduct in the workplace. An intern may witness other employees discuss, for example, that they are doing the work of an unpaid intern. This can create a hostile environment for the intern even when there is some hope the internship may lead to a good job.

What Makes a Good Unpaid Internship in CA

The answer is seemingly well-settled in California, and rests in application of the California Division of Labor Standards Enforcement ("DLSE") test for "unpaid externs" (the "DLSE Test") and the U.S. Department of Labor’s six-factor test for interns under federal law (the "Six-Factor Test").
To meet the DLSE Test, the intern must be considered an "unpaid extern" and must satisfy the following six criteria:

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.
The training is for the benefit of the intern or student.
The intern or student does not displace regular employees, but works under close supervision of staff.
The employer that provides the training derives no immediate advantage from the activities of the intern or student and on occasion its operations may actually be impeded.
The intern or student is not necessarily entitled to a job at the conclusion of the training period.
The employer and the intern or student understand that the intern or student is not entitled to wages for the time spent in the internship.

The DLSE Test is derived from regulations promulgated by the federal Department of Labor. The state test varies slightly from the federal test, however, which was recognized in 2010 in a case related to whether unpaid interns are "employees" protected under California’s Labor Code ("Labor Code").
Under the Six-Factor Test, an intern is not an employee, and thus is not entitled to minimum wage and other protections afforded employees, if the following 6 factors are satisfied:

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.
The internship experience is for the benefit of the intern.
The intern does not displace a regular employee but works under close supervision of existing staff.
The employer that provides the training derives no immediate advantage from the activities of the intern; on occasion, its operations may be impeded.
The intern is not necessarily entitled to a job at the conclusion of the internship.
The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship. Like the DLSE Test, Factor 2 of the Six-Factor Test was amended in February 2010. Whereas before, the factors mentioned above focused on whether the intern or student, in fact, received the benefit of the training, the factors were updated to clarify that an intern may still be deemed an "employee" if he or she receives any sort of immediate advantage from the employer. In the 2010 Guidance, the United States Department of Labor explained that "[e]ven if the employer may derive some immediate advantage from the activities of the interns, these factors indicate that the primary beneficiary is the intern." In other words, the intern may benefit from receiving school credit or some other intangible benefit from the internship, thereby being deemed the primary beneficiary. Depending on the nature of the job duties performed, the duration of the internship, and the degree of supervision, evidence supporting an internship meeting the requirements of the state-law test or the federal test may exist. At minimum, employers must use caution in implementing their internship programs in order to minimize exposure to litigation.

Issues for Employers

In many cases, the employer will be liable to pay wages, penalties and interest, as well as the employee’s attorney’s fees and costs incurred in bringing the wage claims. Moreover, the misclassified unpaid intern may have standing to bring a PAGA representative action on behalf of herself and others and/or a class action in California state court on behalf of herself and other unpaid interns employed by the same employer. Even if the employer is legally justified, the employer runs a significant reputational risk that may deter students from pursuing internships at the employer’s business.

Unpaid Intern Rights

The rights of unpaid interns in California are not the same as those enjoyed by employees. However, such interns have rights under Title VII of the Civil Rights Act of 1964 that prohibit employment discrimination on the basis of gender, race, color, religion, national origin, and pregnancy. The United States Equal Employment Opportunity Commission (EEOC) will investigate claims of unlawful discrimination, harassment, and retaliation. Interns or trainees may file an EEOC charge of discrimination through the EEOC, which will then investigate the claim and issue a final determination. If the EEOC finds enough evidence for a violation, it will issue a right-to-sue-letter.
Intern Protection: Discrimination and Harassment
Unpaid interns are afforded some protections against discrimination, harassment, and retaliation, such as disability, age, race, color, religion, national origin, sex , reverse discrimination, and pregnancy. The California Fair Employment and Housing Act (FEHA) (Gov. Code §12900 et seq.) affords protections to unpaid interns and applicants for internships or training programs against workplace discrimination and harassment for their gender, race, color, religion, national origin, ancestry, physical disability, mental disability, medical condition, marital status, age, sexual orientation, family care, place of birth, and sexual harassment.
Compensation for Unpaid Interns
An unpaid intern (or trainee) may recover for unpaid wages, liquidated damages, attorney fees, costs, interest, reinstatement, and injunctive relief. An unpaid intern under 18 years of age who is employed contrary to California’s child labor laws may maintain a civil cause of action for damages for loss of wages, damages for mental suffering, and attorney fees. Cal. Labor Code §1195.

Advantages and Disadvantages of Unpaid Internships

At first glance, unremunerated interns appear to be a win/win proposition for everyone. They provide free labor for the employer. The interns learn how their chosen industry/institution works from the inside, thereby gaining valuable experience and references. And for this magical experience, the employer pays nothing and the intern pays nothing (for the privilege of being employed/unemployed).
About those "out of this world" benefits…
From the intern’s perspective, contractual negotiability is limited. Interns can either take it or leave it, and the term sheet might well be non-negotiable. So the first negative aspect may be that the organization unilaterally creates the guidelines that will dictate the type of work assigned, how the intern will be supervised, and how often the intern will receive feedback on his/her performance.
Another negative is that while unpaid internship programs can offer a valuable source of work experience, the lack of compensation may make it difficult for some people to afford to accept such a position.
In addition to the above, some people perceive unpaid internships as elitist. That is, only those who can afford to spend 10 weeks without pay are able to take an unpaid internship. In other words, they reinforce the economic status quo, which hurts diversity. Moreover, the gain from such experiences is often not worth what they do cost-i.e., when an unpaid intern has to relocate to the area (likely a city with a higher cost of living), or if he/she happens to have to work around other responsibilities, such as school or a full-time position, the resources required may well exceed the amount of money or goodwill received by the intern.
It should also be noted that unpaid interns are more likely than paid interns to have trouble finding employment. Specifically, a study conducted in 2015 in England revealed that 20 percent of the unpaid interns included in the study ended up without jobs after six months. This compared to 11 percent of paid interns who remained jobless.
From the employer’s standpoint, there are really only two potential drawbacks to unpaid internships:
First, if the internship program is not carefully formulated, the organization might miss out on the opportunity to hire a talented employee. Even if the employer does not want to hire every intern, sometimes they find they want to hire one or two. To prevent this from happening (in the case of those individuals who have been exempted from the FLSA and are thus not entitled to the minimum wage), employers are encouraged to create a system by which the organization can evaluate the interns, and to then maintain a list of those who have met the minimum desired attributes and who might be contacted when a paid position opens.
Second is perhaps the most obvious, which is that the organization is not only giving away valuable training, but forgoing the opportunity to make money off of the individuals in the process. Salaried employees often make significantly less money than their fee-driven counterparts, so organizations are missing out on a potential profit center by not charging interns a fee. As with other paid courses, a portion of this fee could be used to "scholarship" someone who cannot afford the tuition but is otherwise qualified.
What’s the takeaway? Prospective unpaid interns should carefully weigh the benefits of an unpaid internship against the costs of such an opportunity to determine whether it is right for them. Likewise, before accepting an intern, employers should consider the law’s standards for determining exemptions and what, if any, salary they are willing to pay before moving forward.

Obtaining a Proper Unpaid Internship

For students and job seekers looking to secure an unpaid internship in California, there are several steps you can take to help ensure that your internship meets the legal standard. Here are some tips to keep in mind:

Seek Opportunities at Reputable Organizations: Start by researching companies or organizations that have established internship programs and are known to provide quality internships. Look for organizations that explicitly state that they comply with California’s internship laws.
Prioritize Educational Value: When applying for unpaid internships, be cautious of positions that do not emphasize the learning aspect of the experience. An employer that fails to provide a clear educational framework for the internship may not meet the legal requirements.
Clarify Role Expectations: During the interview process for the internship, inquire about the normal responsibilities of interns. If it seems more like work (i.e . , work the employer would typically hire someone to do), then it is probably not a legal unpaid internship.
Create a Detailed Internship Plan: Whether you are offered an internship or you are an employer creating an unpaid internship program, it’s important to develop a detailed internship plan or syllabus. This should include the goals of the internship, the specific duties of the intern, and how the internship will enhance the intern’s skills.
Prepare for a Dialog with the Employer: If you do land an unpaid internship, prepare for discussing your role and duties with your employer. Make sure you have a good understanding of how your work will be structured to benefit the employer and your learning.
Document Everything: For both candidates and employers, it is essential to document the internship process from the initial application to the final report or project. Keep copies of any written internship agreements, applications, and other important documents that track the internship’s progress.