Unpaid Internships: Free Labor? Not Really …

It’s that time of year when companies start to consider internships. College students frequently look to internships to gain valuable work experience. Our current economy has created a situation in which many college students are willing to take on such internships unpaid. The interns get work experience to fill their resumes and the companies get extra help at no cost. Sound too good to be true? It is.
Although unpaid internships sound like an attractive proposition for companies, federal law places strict guidelines on the types of internships that are permitted to be “unpaid.” Under the Fair Labor Standards Act (FLSA), covered and non-exempt individuals who are permitted to work must be compensated for the services they perform for an employer. Internships in the for-profit, private sector will almost always be viewed as employment under the FLSA, unless the following test is met:
1.      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;
2.      The internship experience is for the benefit of the intern;
3.      The intern does not displace regular employees, but works under close supervision of existing staff;
4.      The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impaired;
5.      The intern is not necessarily entitled to a job at the conclusion of the internship; and
6.      The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
If all of the above factors are met, then an employment relationship does not exist under the FLSA and the internship may be unpaid. This determination is made by looking at all facts and circumstances of the internship program. If the above factors are not met, then the intern must be paid at least the minimum wage and overtime compensation for hours worked over 40 hours in a workweek.
Significantly, the definition of “an educational environment” under this test is narrow. As a general rule, interns that are engaged in the operations of the employer or are performing productive work such as filing, clerical work or customer service-type work are not excluded from the FLSA’s wage and overtime requirements – even though they may in fact be receiving the benefit of a new skill or work experience – because the employer benefits from the intern’s work. Instead, unpaid internships must be structured around a classroom or academic experience, such as internship programs that are supervised by a college or university that provides educational credit. In such situations, the intern does not perform routine work of the for-profit business on a regular and recurring basis but rather “shadows” or observes the business’s operations under close and constant supervision of regular employees.   
Unpaid internships should not be used as a “trial period” for individuals seeking permanent employment at the end of the internship period. Interns placed with the expectation that they will be hired at the successful conclusion of the trial period are generally considered employees under the FLSA.
In addition to following the FLSA’s six-part test, companies looking to create unpaid internships should also check state law requirements. In the long run, unpaid internships may be more costly than hiring interns and paying them minimum wage. Employees cannot waive their FLSA rights, even if they want to. Thus, the existence of a written agreement establishing that the internship is unpaid (mandatory under the six-factor test above) will not, standing alone, free a company from liability under the FLSA since all parts of the six-part test must be met.



Pink Slip Protection: Former Employees Have Employment Rights Too

Last week the U.S. 4th Circuit ruled that a former employee may enjoy legal protection under Title VII of the Civil Rights Act. The court ruled in favor of a former Virginia county employee who alleged she was offered a less favorable severance package because she is a woman. Gerner v. Cnty. of Chesterfield, Va., 765 F.Supp.2d 770.

The district court had found that the employee had “failed to allege a Title VII claim because the County’s assertedly discriminatory denial of severance benefits did not constitute an adverse employment action,” which is one of the four factors necessary to establish a prima facie case of gender discrimination.  A plaintiff must also prove that she is a member of a protected class; that she had satisfactory job performance; and that similarly situated employees outside the protected class received more favorable treatment. White v. BFI Waste Servs., LLC, 375 F.3d 288, 295 (4th Cir. 2004).

The district court determined that the county’s offer did not constitute an adverse employment action under the theory that (1) severance benefits were not a "contractual entitlement" and (2) the severance package was not offered until after her employment was terminated. The 4th Circuit reversed.

In its opinion, the 4th Circuit stated that the first of two reasons for the reversal is that the Supreme Court previously established that any “benefit that is part and parcel of the employment relationship may not be doled out in a discriminatory fashion, even if the employer would be free under the employment contract simply not to provide the benefit at all." Hishon v. King & Spalding, 467 U.S. 69 (1984). 

In stating its second reason for reversing the matter, the 4th Circuit pointed to the plain language of Title VII stating that it protects both current and former employees from discriminatory adverse employment actions, as well as those who may have been wrongfully denied employment. (Additionally, the 4th Circuit found that the plaintiff had in fact pled factual allegations that could establish the adverse action occurred prior to termination.) The matter was remanded to the district court on two additional arguments that were newly raised by the county.

As always, it is not whether you are generous to your employees but whether you treat them equally that matters.  The 4th Circuit opinion makes clear that this can extend to your former employees as well.  For this reason, when making termination decisions, it is crucial to review your previous severance decisions. 



March Madness Office Pools: Legal Tips for Employers and Employees

On March 12, ABC7 published an interview* with Roetzel attorney Jaime Maurer offering tips to employers and employees holding and entering college basketball office pools.
Jaime recommends keeping the stakes low, to maybe a $10 buy-in. She also suggests that employers use “a bit of a hands-off approach,” and that for both employer and employee, use moderation in approaching office pools.
“Don’t let it interfere with what it is we’re all at work to do, which is produce results,” Jaime cautions. “There’s no harm in engaging in these sorts of things, but try to do it on your own time. Try to do it off-site. Try to do it on break.”
Click on the link to read the article and watch Jaime’s video interview (subject to ABC7 availability): http://www.abc-7.com/story/17140877/2012/03/12/march-madness-office-pool-legal-tips.

*Paul Gessler, “March Madness’ office pool legal tips,” ABC7, Fort Myers, FL, March 12, 2012.



A Brief Compliance Guidance for H-1B Employers

The National Foundation for American Policy (NFAP) has reported an increase in denials of H-1B petitions by U.S. Citizenship and Immigration Services (USCIS) in the past three years. An H-1B petition is a request for a temporary visa for foreign workers and is usually filed by a U.S. employer wishing to employ a foreign worker in a specialty occupation based on his/her education and expertise. The visa is valid for three years with the possibility of renewal for another three years through a formal application process. In recent years, the Department of Labor (DOL) has also increased the frequency of its investigations of H-1B practices and the harshness of its penalties. A DOL audit generally assesses whether there are any violations of the Labor Condition Application (LCA), a mandatory application for all H-1B employers and the first step in the H-1B process. It is always best to consult with counsel before filing an H-1B petition and related extensions, as the “do-it-yourself” approach can often lead to denials, greater appeal costs, and can have irreversible consequences for the employer and the employee.
However, employers can take the following steps to ensure compliance with all H-1B and LCA requirements.
Know Your H-1B Employees. It is essential that a company’s Human Resources (HR) department be aware of which of its employees are H-1B visa holders. This seems like a simple task; however, for HR departments of large companies that oversee the HR process for multiple subsidiaries, the situation is more complex. When entities are bought or sold, or when two entities merge, the HR representatives must inquire whether any H-1B or other foreign workers are employed by the newly added entity.
Centralize the Process. Designate one member of the HR department to keep all files related to foreign workers, including H-1B visa holders, and provide him or her with sufficient training regarding the nature and requirements of the H-1B visa process, document retention requirements, H-1B extension procedures, and what to do in case of an audit. The designated person should also keep and maintain the LCA documentation, such as the prevailing wage determinations or the public access file that must be maintained by the employer when filing an LCA.
Organize the Important Data. Create and keep a detailed log of H-1B employees, including their names, their dependents (if any), the validity of the H-1B status, the entity that submitted the H-1B petition, and the worksite for which the visa was approved. Companies that contract the work of H-1B employees to different clients or work locations should know that the employee is allowed to work only in approved locations. If the company needs to transfer the H-1B employee to another location, an immigration attorney should be consulted to ensure that the proper paperwork is filed with the DOL and USCIS.
Review Periodically. Monitor the log regularly to determine the status of H-1B workers, whether they have transferred to or are doing work for a different subsidiary, are working at a different location, and/or whether an extension is needed soon.
Request Timely Extensions. At least two months before a worker’s H-1B status expires, determine whether the status should be extended for an additional three years. It is very difficult to file for an extension of the H-1B status for an out-of-status worker, so it is important to contact an immigration attorney as soon as possible to begin the extension process. An extension denied as a result of a delay can result in devastating consequences for the employee and his family, and can have negative consequences for the employer as well.
Deal with Termination. When H-1B employment terminates, it is necessary to document the termination and formally revoke the H-1B petition. The employer should request a confirmation of the revocation from USCIS to provide a clear end to the employer’s wage obligations. DOL and courts have sometimes found that in the absence of a revocation, wages were appropriate until the confirmation date of the revocation.
No Benching. An employer that has little or no work for an H-1B employee has only three options: 1) Continue to pay the prevailing wage to the employee even if he or she is in “nonproductive status”; 2) Terminate the employee and revoke the H-1B petition; or 3) Amend the H-1B petition for part-time employment if the employer has some work.
Focus on Clean-up Work. Employers should take immediate remedial action in cases of labor or H-1B violations to show good faith and, in case of an audit, avoid harsher DOL penalties. Employers should not attempt to cover up or falsify documents, as this will make the problem worse. Some corrective steps include providing training to HR personnel regarding H-1B requirements, filing H-1B petition amendments, filing new LCAs, paying back wages, organizing documentations, and establishing a clear procedure for dealing with H-1B petitions and employees in the future.



Ohio Supreme Court Upholds Law Requiring Bifurcation of Compensatory and Punitive Damages for Tort Claims

The Supreme Court of Ohio recently issued its decision in Havel v. Villa St. Joseph, Slip Opinion No. 2012-Ohio-552, which upheld a provision of Ohio’s tort reform (Ohio Rev. Code § 2315.21(B)) that requires state courts to grant requests for bifurcation of trials. Bifurcation means that claims for compensatory damages and claims for punitive damages are separated into two separate actions. Ohio Rev. Code § 2315.21(B) provides that upon the motion of any party in a tort action in which compensatory and punitive damages are made, the trial shall be bifurcated. Meanwhile, Ohio Civ. R. P. 42(B) vests trial courts with discretion to order a separate trial of any claim when doing so would promote convenience, avoid prejudice, or when it would be economically prudent. The statute and the civil rule certainly conflict as the statute requires a trial court to bifurcate upon request and the civil rule leaves bifurcation to the judge’s discretion. The Supreme Court determined that Ohio Rev. Code § 2315.21(B) prevails over Ohio Civ. R. P. 42(B).
In reaching its decision, the Supreme Court resolved a conflict among the appellate districts in Ohio. The Eighth District Court of Appeals determined that Ohio Rev. Code § 2315.21(B) was unconstitutional while the Tenth District Court of Appeals held the statute was constitutional.
The importance of the Supreme Court’s decision as it relates to employment matters is not obvious; however, the Eighth District Court of Appeals recently made it clear in Luri v. Republic Services, et al., 2011-Ohio-2389, that discrimination and retaliation claims are, in fact, tort actions. As such, Ohio Rev. Code § 2315.21(B) will apply to actions in state courts involving claims of discrimination if both compensatory and punitive damages are claimed. Upon request, courts must separate the stages of trial relating to the presentation of evidence for compensatory and punitive damages. Luri involved a retaliation claim where the jury awarded $46.6 million to the plaintiff that included $43.1 million in punitive damages. Ironically, Luri is pending before the Supreme Court of Ohio but was stayed pending the decision in Havel because the employer requested bifurcation and the trial court denied the request.
The practical effect of separating compensatory and punitive damages means that it will be more difficult for plaintiffs to recover punitive damages. Additionally, the separation is likely to lead to less juror confusion as to when punitive damages are warranted, especially in employment discrimination cases where the fact that discrimination occurred does not satisfy the standard for awarding punitive damages.

Contact: Jon Secrest