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Legal Eagles: Municipal Interns - FLSA Reminder 

By Kim Hibbard, NCLM General Counsel

Is your town contemplating the use of either paid or unpaid interns in municipal departments? To avoid potential pitfalls, here are a few things to consider as you plan for the intern hiring season.

Problems can arise when interns are viewed simply as free (or cheap) labor and insufficient consideration is given to how the program and compensation, if any, is to be structured. In recent years, the U.S. Department of Labor has signaled a renewed interest in policing internship programs for compliance with wage and hour requirements, and there have been several court cases in which interns have sued for wage violations.

If you are contemplating paid interns, be aware that the Fair Labor Standards Act defines the term "employ" very broadly ("to suffer or permit to work"). The FLSA does not create an exception for interns, so paid interns should generally be treated as employees entitled to the protections of the minimum wage and overtime provisions. For that reason, be cautious with structuring compensation and expectations for maximum hours to be worked. Offering stipends, such as a lump sum for an entire summer, can result in an FLSA violation, since the amount paid must ultimately work out to pay at least the minimum wage for the hours worked.

What about unpaid interns? In 2010, the Department of Labor’s Wage and Hour Division issued guidelines for internships in its Fact Sheet #71. In that document, the Department sets forth a six-part test for the use of unpaid interns by private sector employers. Some of the criteria are quite difficult to meet. For example, "the internship experience is for the benefit of the intern" and "the employer…derives no immediate advantage from the activities of the intern" may go against typical internship arrangements, since most employers expect to gain some benefit from having interns on board.

However, the guidance gives governmental and non-profit employers much greater latitude to use unpaid interns than is possible in the private sector. The footnote to Fact Sheet #71 states that the FLSA "makes a special exception under certain circumstances for individuals who volunteer to perform services for a state or local government agency…Unpaid internships in the public sector and for non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible." Under this analysis, an unpaid intern for a public sector organization is viewed simply as a volunteer, not an employee. One caveat: The document indicates that the Wage and Hour Division is reviewing the need for additional guidance on internships in the public and non-profit sectors, although none has been forthcoming since the guidance was promulgated in 2010.

To ensure that an unpaid intern retains his or her status as a volunteer, the municipality should determine that the individual is offering services freely and without coercion; that he or she is not otherwise employed by the local government to perform the same type of services; and that the position in fact receives no compensation. Note that volunteers can be paid reimbursement for actual expenses, and may receive a "nominal fee" without losing volunteer status. A nominal fee cannot be a substitute for compensation and cannot be tied to productivity.

Local governments are fortunate to have more flexibility than the private sector in structuring internships that comply with federal law. As always, be sure to consult your municipal attorney for further advice as you develop an appropriate program.