NACE Journal, August 2019

Unpaid internships have long been a staple of early career development for university students. Students receive valuable exposure to “real world” work and résumé-enhancing experience. At the same time, companies have an opportunity to evaluate the performance of the intern for potential future employment.

However, there has also been a longstanding disconnect between the practice of using unpaid interns, and the U.S. wage and hour laws which, with very few exceptions, require workers to be paid for work performed. Many, if not most, unpaid internship programs for private employers have proceeded in direct violation of wage and hour requirements. These unpaid internship programs have thrived largely as a result of lax enforcement of wage and hour laws by the U.S. Department of Labor (DOL) in connection with such programs.

All of this has now changed. The DOL is vigorously investigating unpaid internship programs to determine if the work performed should be compensated. At the same time, lawyers representing unpaid interns have been active in bringing lawsuits against companies in which the lawyers are seeking back wages for work performed by the unpaid intern.

What constitutes a “lawful” unpaid internship program versus an “unlawful” unpaid internship? And what are the consequences of an unlawful unpaid internship program for an employer and for the student—especially the international student? These issues are discussed below. First, however, it is important to frame the issue of unpaid internships for international students.

Framing the Issue for International Students

If the DOL, in connection with an audit of a company, or if a court, in connection with a lawsuit, determines that the work performed by the intern should have been paid, this determination has dramatically different consequences for an international student when compared to a U.S. student:

• For a U.S. company, a finding by the DOL or a court that the internship should have been paid will result in the employer being liable for back pay to the student for time worked.
• For a U.S. student, this means the student will receive back pay for the time worked. There is no other consequence to this U.S. student.
• For an international student, the consequences are significant. If an unpaid internship should have been a paid internship under DOL rules, then the student must be “employment authorized” in order to undertake the internship. If the international student undertakes such an internship without first obtaining proper work authorization, then the student will violate status because the student has engaged in unauthorized employment. This renders the student deportable from the United States.

With the new DOL emphasis on enforcement, it is important for employers, college career services professionals, and students to understand the rules governing unpaid internships. This article summarizes those rules and discusses the ramifications for international students who engage in unpaid internship programs.

Determining Whether an Unpaid Internship Is Proper

Are your international students or interns at risk of violating their immigration status by engaging in a volunteer or unpaid internship program? The answer requires the following analysis:

• Does the internship program satisfy DOL rules regarding lawful unpaid work? If so, then the work is not considered “employment.” International students can engage in this type of internship without pay and without any type of work authorization.
• If the program does not satisfy DOL rules regarding unpaid work, then the work is “employment.” In this case, an international student can engage in the internship only if he or she has proper work authorization, i.e., F-1 Optional Practical Training or Curricular Practical Training; or J-1 Academic Training. If the student engages in work that does not satisfy DOL rules regarding unpaid work and does so without proper work authorization, the student is engaging in unauthorized employment and is out of status, even if the student receives no pay.

The key point is this: Whether an international student in F-1 or J-1 status requires “work authorization” is not governed by whether the student is paid.¹ An international student may need proper F-1 or J-1 work authorization even for unpaid work. Only if the work is lawful “volunteer” unpaid work under DOL rules can the international student perform the work without proper work authorization.

DOL Rules Governing Unpaid Internships

The general rule under the Fair Labor Standards Act (FLSA) is that, if an individual works under the direction and control of a company or organization and provides a beneficial service for the company or organization, the individual is supposed to be paid at least the federal minimum wage for the service.

There are exceptions to this rule, but the exceptions are very limited. The following are clear circumstances in which the DOL has stated that work can be performed without compensation:

• Unpaid “charitable” work for a nonprofit charity.
• Unpaid “charitable” work for a volunteer food bank.
• Unpaid work for state or local government agencies is permissible if there is a “civic” purpose to the work.

But what about unpaid work for a for-profit, private-sector company? The circumstances whereby unpaid work is permissible are limited. The DOL Wage and Hour Division has established a seven-factor test for determining whether work for a private company is legitimately volunteer training (for which no pay is required, and, for international students, no work authorization is required); or whether it is employment (for which pay and work authorization are required). The seven-factor test is designed as a flexible test to determine who is the “primary beneficiary” of the work performed. If the primary beneficiary is the intern, then the work is properly unpaid. If the primary beneficiary is the company, then the work should be paid. Here are the factors reviewed:

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee;
2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions;
3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit;
4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar;
5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning;
6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern; and
7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

This test replaces the old six-factor test. The old test established a more bright-line rule: If the worker provided productive service, then the work should be paid. The new test is a more flexible “economic realities” test, evaluating factors such as whether the work is consistent with the intern’s school year, whether the work lasts longer than necessary for training, and so forth.

In practice, this is not an easy test to apply. It may never be clear to a career services office or to a student that an unpaid internship opportunity complies with these factors. For U.S. students, “back pay” is the consequence of a later determination by the DOL or a court that the internship should have been paid. For international students, the consequence is violation of status and risk of deportation.

Because of the harsh consequences for international students, the safest course is to counsel them to obtain proper work authorization for off-campus work, even for unpaid intern positions.

Work Authorization for International Students

What is proper work authorization for an international student? That depends on the student’s status. International students in the United States can attend college in any one of a number of immigration statuses:

F-1 status is a typical “student” status for students enrolled in an academic program. F-1 students are not permitted to engage in employment without the requisite authorization. For F-1 students, the work authorization options for off-campus work are as follows:

• Curricular practical training (CPT): F-1 students can be approved by a school’s designated school official (DSO) to work for a specific off-campus employer for a specific time period as CPT. To qualify for CPT, the work must be an integral part of the established curriculum in the student’s course of study, such as, for example, off-campus student teaching for education majors. In other words, the degree program must include a work component, even if the work component is an elective. CPT can be approved either for part-time (20 hours or less per week) or full-time employment (for example, in a cooperative situation). DSO approval, and notation of that approval on the student’s Student and Exchange Visitor Program (SEVIS) record and Form I-20, are required prior to beginning CPT.
• Optional practical training (OPT): OPT is another common way for F-1 students to work as employees or trainees. OPT allows the student to work for any employer in a job related to the student’s degree program. Most students in F-1 status are eligible for a total of 12 months of OPT, which can be used during the degree program or can be used to work after graduation. OPT can be part time while school is in session, or full time during breaks. OPT used during the degree program is subtracted from OPT time available after the degree is completed.
• Economic hardship: An F-1 student who has maintained F-1 status for an academic year and is in good academic standing may apply for off-campus employment based on economic hardship. “Economic hardship” refers to financial problems caused by unforeseen circumstances beyond the student’s control. The student must apply to the U.S. Citizenship and Immigration Services (USCIS) for authorization to work based on economic hardship.
• Designated international organizations: Certain organizations, e.g., United Nations, World Bank, IMF, and so forth, are permitted to hire F-1 students for work experience.

F-1 students must use one of these options to work off campus unless the work satisfies the DOL’s seven-factor test.

J-1 status is for exchange visitors engaged in designated programs at a U.S. university. For J-1 students, the options for off-campus work are:

• Employment related to scholarships, assistantships, and fellowships: This employment requires written approval by the university DSO in advance of commencement of employment. If the J-1 program is sponsored by an agency other than the school, then the student will need to obtain from that agency written authorization for employment. The J-1 student can work no more than 20 hours per week while school is in session and full time during breaks.
• Unforeseen economic circumstances: A J-1 student may be authorized for off-campus employment when necessary because of serious, urgent, and unforeseen economic circumstances that have arisen since acquiring J-1 status. This type of J-1 student employment is subject to the 20-hour-per-week maximum while school is in session.
• Employment pursuant to academic training for J-1 students and post-docs: Most J-1 students are eligible for academic training during or after completing their education in the United States. This is 18 months for most J-1 students, and up to 36 months for post-doctoral research. This is similar to F-1 optional practical training; however, unlike F-1 students, the J-1 students engaging in academic training do not require formal employment authorization from the USCIS.

“Dependent” visas are, for example, for the dependents of spouses or parents who are in the United States in a work-authorized visa status, such as H-1B, E-1/E-2/E-3, L-1, O-1. In general, students attending school using a dependent visa are ineligible to work, unless the work is lawfully unpaid under the seven-factor test.

In some circumstances, work authorization is available for L-2 and H-4 dependent spouses. All L-2 spouses are eligible for work authorization by filing an application with the USCIS. H-4 spouses can obtain work authorization if their H-1B spouse has begun the green card process in order to be eligible for work authorization. L-2 and H-4 dependent children are not eligible for work authorization without a change of status.

Obtain Proper Work Authorization

Given the difficulty and ambiguity of the DOL’s seven-factor test, the safest rule for international students should be that, if a student is providing a beneficial service to an employer, whether paid or unpaid, the student should obtain proper authorization to work.

Note: This column provides general information regarding work options for foreign students. It is not intended as legal advice and does not establish an attorney/client relationship. Each situation is unique, and students and employers should consult their legal counsel to determine work eligibility.

Endnotes

¹ Most international students in the United States are in F-1 or J-1 status. There may be students in other types of status, such as H-4 (dependent of an H-1B parent or spouse) or L-2 (dependent of an L-1 parent or spouse). For these students, there is no work authorization available.