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In Both the US and UK, It Is Important To Structure Internship Programs Correctly

The following update was prepared by Carly-Jane King, an associate in Gibson Dunn’s London office, and Thomas M. Johnson, an associate in Gibson Dunn’s Washington, D.C. office.

Internships are a valuable tool for the fashion and retail industries to obtain access to talented individuals and to provide them with meaningful work experience.  Companies must be aware, however, of potential legal restrictions on the use of internship programs.  In recent years, there has been growing concern in the United States, the United Kingdom, and across the globe about the exploitation of interns.  In particular, both jurisdictions limit the circumstances in which employers may treat interns as unpaid volunteers.  That said, in many cases it will be possible to structure an internship program that both complies with the law and provides a mutually beneficial experience for the company and the intern.

United States

In the United States, the Fair Labor Standards Act (“FLSA”) requires that employers pay the minimum wage and any applicable overtime premium to every person that they “employ”—that is, anyone the employer “suffer[s] or permit[s]” to work.  This definition is intentionally broad, but there is a narrow exception for participants in certain internship programs.  The Department of Labor has developed a six-part test that employers should consult in determining whether a particular unpaid internship is permissible.

Under that test, the classic example of a lawful unpaid internship is an assignment for which the intern will receive class credit, and may even be required to submit a paper or take an exam for a grade.  Unpaid internships are appropriate when they are an extension of the classroom experience.  Employers structuring unpaid internship programs might schedule events that resemble the classroom environment, such as lectures by special guests, opportunities to “shadow” top executives for a day, tours of the worksite, or outside excursions to fashion shows.

Employers should avoid hiring unpaid interns simply to fill an immediate short-term business need of the company, such as preparing necessary paperwork to assist designers with the launch of a new product line.  While such opportunities can provide interns with a meaningful experience, the interns are performing work that the employer would otherwise need to hire paid workers to perform.  (Of course, there is nothing inherently wrong with having interns perform such work, as long as the interns are paid the minimum wage, plus any applicable overtime premiums.)

Further, it is natural for employers to seek to maintain relationships with talented students who they identify as top prospects for employment after graduation.  If the internship is unpaid, however, no promise of future employment should be made at the conclusion of the program.  It would be appropriate, however, to provide the intern with information about how to apply for a full-time position at the conclusion of his or her education and to consider the intern for a position at that time.

In sum, employers should view unpaid internships as a way to support their local communities and provide students with skills they can use when they enter the job market.  To the extent that these internships become a free source of labor for a company to perform necessary business-related tasks, they carry significant litigation risks.

United Kingdom

The UK has generous protections in place for those individuals who are categorized as a “worker” or “employee.”  While an intern does not necessarily or automatically fall within one of these categories, there is an inherent risk of inadvertently creating an employment relationship through your dealings with an intern.  Workers and employees are entitled to certain rights and protections in the UK, such as a national minimum wage and paid holiday time, and such rights cannot be signed away.

When determining the relationship between the employer and the individual, all of the circumstances are taken into account and an intern’s job title or job description do not prevent an intern being a “worker” or “employee.”  The UK courts and Government guidance indicate that even if interns are paid on an “expenses-only” basis, they can still be classified as workers, which is possible notwithstanding that the contract is on an oral basis.

From an immigration perspective, the UK has complex rules concerning whether visas or work permits are required by students or interns who are not nationals of the European Economic Area.  Employers can try to put the onus on their interns to ensure they comply with these requirements, although employers should always be aware of the applicable immigration rules before engaging an intern.

In certain limited circumstances, it may be possible to offer an unpaid internship although this may not be suitable for your needs.  We urge extreme caution and recommend seeking advice before taking action.

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Companies looking to establish internships in the United States or the United Kingdom are welcome to reach out to Gibson Dunn before proceeding, and we would be very happy to assist.

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