Hiring Interns is Risky Business: A lesson from Condé Nast and Fox

As a startup or small business, hiring interns seems appealing. You need the help but don't have the budget to pay an employee. And the intern gets valuable experience and training. It's a win-win, right? Not quite. Hiring interns as a for-profit business can carry a lot of risk and it is a good idea to seek a startup lawyer.

Condé Nast, which runs a number of high-end magazines like Vogue and GQ, agreed on Thursday, November 13, 2014 to pay $5.8 million to settle a class action suit brought by roughly 7,500 former interns. The plaintiffs, which include a former W Magazine intern who was paid $1 per hour and a New Yorker intern who was paid $300 for the entire summer, filed suit in July 2013 claiming that they were underpaid because they performed the functions of employees.

The Condé Nast lawsuit was filed just two days after Judge William Pauley III of the U.S. District Court for the Southern District of New York ruled that Fox Searchlight Pictures violated employment and labor laws when it used unpaid interns for the production of the "Black Swan" motion picture. In the Fox case, the plaintiffs claimed that they were entitled to protection under state and federal laws as employees, and the judge agreed, granting plaintiffs' motion for summary judgment without a trial.

The Condé Nast and Fox cases illustrate the risk of hiring interns as a for-profit company. While for-profit businesses can classify workers as independent contractors so long as they comply with the applicable requirements by sacrificing control and supervision, it is a bad idea for businesses to try to avoid employment laws by hiring interns that are either unpaid or underpaid.

Under both the Federal Fair Labor Standards Act and the California Unfair Competition Law, employees receive certain protections, including minimum wage, overtime, and other benefits. In very limited circumstances, both federal and state laws permit an employer to hire volunteer interns, which do not receive employee protection. But all of the following requirements must be met or a court may find an employment relationship:

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

The requirements that the intern's training be similar to that in an educational environment, that the intern may not displace regular employees, and that the internship cannot immediately benefit the employer make it nearly impossible for for-profit businesses, particularly small businesses and startups, to devote the necessary resources to running an internship program that complies with the above requirements. Companies like Google can have internship programs because they devote a significant amount of time and money in the programs.

While hiring interns may seem appealing as a startup or small business, it is best avoided.

For more information, see Fact Sheet #71 from the U.S. Department of Labor.

DISCLAIMER: The information in this article is provided for informational purposes only and should not be construed or relied upon as legal advice. This article may constitute attorney advertising under applicable state laws.