Protecting Students Against Learning Opportunities

by | Apr 19, 2010 | Business Owners, In The News, Weekly Column

A student, I’ll call Sally is finishing her master’s degree in financial planning. Two years ago, Sally completed a paid internship at my office and did a fine job. This year, she applied with us to complete the practicum that is one of her graduation requirements.

One of the major reasons firms offer internships is to evaluate potential new hires. Since Sally will move to Minnesota upon graduation, she is no longer a potential hire for our firm. This was one of several reasons why we did not offer her a paid internship/practicum this summer.

Still, wanting to help her fulfill her practicum requirement, we decided we could allow her to sit in on client meetings and write up the meeting notes. It appeared this would fulfill the qualifications for the practicum and give her valuable experience. Since having her do this was of no value to me, and actually some imposition, my offer did not include renumeration.

It never occurred to me that offering Sally an unpaid practicum might violate the minimum wage laws.

I was shocked to learn last week that my offer to Sally may run afoul of new regulations cracking down on unpaid internships. I’ve reviewed articles on the topic that appeared in The New York Times, The Wall Street Journal, and the Christian Science Monitor. I’ve also reviewed the U.S. Department of Labor’s “Training and Employment Guidance Letter No. 12-09” that lists the six factors used to evaluate whether a worker is a trainee or an employee for the purposes of FLSA.

This research indicates that about half of Sally’s proposed hours, observing client meetings, would meet the spirit of the six factors. The other half of the engagement, writing up the notes, is less clear. I currently write up my own notes, so she would not be replacing an employee. While I would have to review, correct, and critique her notes, it could be argued that I might save some time, giving me an economic benefit. If so, I may need to reimburse her for those hours.

A safer option would be to have her only observe client meetings. If we did that, however, she might not get the hours she needs to complete the practicum.

In order for me to consider an unpaid practicum for Sally, her college will need to satisfy my legal counsel with a “hold harmless” guarantee from any action of the U.S. Department of Labor. Another possibility would be to obtain a “no action” letter from the Department of Labor agreeing that the practicum complies with its six factors. Yet another option would be to make me an adjunct faculty member and pay me a small amount for instructing the practicum. Getting any of this done in time for Sally to start her practicum is extremely unlikely.

I’ve had to ask myself, “Why I would put my firm at risk of an audit and potential action?” Just proving my compliance with the six factors would be costly in terms of my time, energy, and attorney fees. Why go courting trouble?

Sadly, I’ve concluded offering an unpaid practicum is simply not worth the risk. I cannot risk my reputation and livelihood to become the latest “example” of a “rich” business owner taking advantage of a “poor” college student.

I realize the intent of the law and the crackdown is to eliminate abuses. Unfortunately, as with most legislation, there are always unintended consequences. I am saddened and angry that the Labor Department’s zeal to protect students from a few predatory employers will also prevent many students from receiving valuable experience offered by well-intentioned employers.

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