Ask any college student: if you want to land a high-quality job after graduation, it’s imperative that you take an internship, or preferably multiple internships. Unfortunately, many are unpaid. In 2016, the Viscardi Center cited data from the National Association of Colleges and Employers (NACE) reporting that 46.5 percent of internships are unpaid. Some unpaid internships can be transferred into course credits, while others provide nothing other than the ever-ambiguous “experience” and a possible resume boost. Other studies have shown that unpaid internships are less beneficial than paid ones; aside from the obvious benefit of financial compensation, NACE has found that paid interns on average receive job offers 72 percent of the time, as opposed to the 44 percent of unpaid interns, according to CNN. But, to pay or not to pay, is that the right question employers should debate? 

Employers, listen up

Here’s the general rule of thumb for internships: if the intern is performing duties that would (and should) be performed by an employee of the company, they should receive compensation.  In fact, paid interns must receive at least the federal minimum wage, as well as overtime pay if they work over a regular work week. In order for an unpaid internship to be lawful, it must fulfill several criteria, courtesy of the U.S. Department of Labor including:

  • The intern is given similar training as if they were in an educational environment
  • The internship is for the intern’s benefit rather than the company’s
  • The intern works closely with existing staff without displacing anyone
  • The intern is by no means guaranteed a job at the end of the internship
  • Both the employer and the intern recognize that the intern is not entitled to monetary compensation for the time spent in the internship

The Olsen twins recently found themselves in double trouble

An internship with Dualstar Entertainment Group, a company owned by Mary-Kate and Ashley Olsen, sounded like a dream come true for many college students. But a recent $140,000 employee practices liability settlement showed that maybe it wasn’t such a great opportunity.

Many students today likely grew up watching the Olsen twins on TV and in movies, and having their names on a resume (or maybe even getting a recommendation from them) would be an instant attention-getter. Unfortunately, that’s not quite how their current and former interns described the experience: a group of approximately 40 current and former interns, sued the company in 2015 with claims of violations of federal and state employment laws. The number of plaintiffs eventually grew to 185 during the course of the intern lawsuit, cited a number of grievances with the experience, including working significant overtime, being given menial tasks that had no educational purpose, and being treated like an employee except they were not paid. 

Dualstar denied all allegations and settled the lawsuit for an undisclosed amount. 

The prior year, a leading magazine publisher had settled an intern lawsuit for $5.85 million based on similar allegations. Other intern lawsuits driven by the same law firms have followed against big names in the retail and publishing business.

Protect your employees and protect yourself

The financial and reputational damage from a similar case could potentially devastate your business. Employment Practices Liability insurance will protect you against claims made by your employees, such as sexual harassment, discrimination, wrongful termination. Contact your HUB broker today to ensure that you are adequately protected from employment practices liability risks.  Make sure to mention to your broker if you employ or plan to hire interns.