Lawsuit Prevention for Employers

RISKS OF MISCLASSIFYING TRAINEES AND INTERNS

The last issue of Heads Up! discussed the surprising legal exposure associated with misclassifying employees as volunteers, and stated that the same exposure applied to the misclassification of  trainees and interns.  What follows will attempt to clarify when a worker is properly classified as a “trainee,” or “intern.”

Many employers subscribe to the dangerous misconception that, as long as a worker is willing to work without compensation, the “employing entity” is somehow free of all legal requirements associated with hiring employees, starting with paying wages.  This notion is not only badly misplaced; it amounts to proceeding under a false sense of security, placing an unwitting practitioner in the most vulnerable position possible.  Misclassifying trainees and interns is no exception.

Trainees and Interns

As with “independent contractors,” California law provides a legal presumption that any work or services provided are performed within the context of an employment relationship.  In other words, workers are legally presumed to be employees, entitled to all of the legal protections that apply to any other employment relationship, unless the “employer” has scrupulously complied with the detailed and demanding requirements applicable to working relationships outside of the employment context.

Once evidence is produced to show that services were performed by a worker, the presumption attaches, and the “employer” must then satisfy the burden of proving that the relationship was other than one of employment. If the evidence supporting both parties’ assertions is of equal force, the presumption will prevail, and the relationship will be deemed to be an employment relationship.

In other words, proving trainee or intern status is an uphill battle from the outset.

In order to establish a legally-enforceable training or “internship” program, all of the following must be proven:

1. The training must resemble that provided in a vocational school;
2. The training must be for the benefit of the trainee or student;
3. The trainee must not displace regular employees;
4. The business providing the training must not derive any immediate benefit from the trainee’s activities, but instead must, at least on occasion, experience an impediment to its operations as a result;
5. Trainees must not have a reasonable expectation of future employment;
6. Trainees must understand that they are not entitled to wages for the time spent in training.

In the author’s experience, requirement number four is almost always fatal to the party asserting the intern/trainee defense.  This is because, as a practical matter, the incentive that would normally induce a business to consider sponsoring a trainee/internship program is the opportunity such a relationship provides for getting work done without cost, or at a reduced rate, with none of the record-keeping requirements or other legal “red tape” associated with adding additional employees.

Because California wage-hour law precludes bona fide training/internship programs from providing any immediate benefit to a business it eliminates the primary incentive that would otherwise exist for establishing such a program.

If a business is unable to meet its burden of proving any of the six criteria enumerated above, an asserted training/internship program will be found unenforceable.  This means that the alleged trainee/intern will be found to be an employee, entitled to all of the rights and legal protections available to any other employee under California law.

Such a finding would immediately subject the employing entity to liability exposure for up to four years prior to the filing of a claim for all of the following:

1. Unpaid wages at the rate paid employees performing the same or similar duties;
2. All taxes that should have been withheld from wages, plus associated penalties;
3. Daily premiums for meal and rest periods that should have been provided to all employees but were not, plus penalties;
4. Overtime compensation for any hours worked beyond eight in a day or 40 in a week; and
5. The value of any fringe benefits that were available to similarly-situated employees, such as health insurance, workers’ compensation insurance, stock options, profit sharing plans and similar benefits, among others.

If the worker initiates legal action to recover these amounts and is awarded even one dollar, he/she is entitled to an award of attorneys’ fees, without regard to the amount of the award.  Attorney’s fees awards often dwarf the amount of the original claim.

Because employers who make the mistake of misclassifying employees often do so repeatedly, such claims are often brought on behalf of all employees who were misclassified in this way.

In addition, the claimant would be entitled to assert any legal rights that would have been available to him/her had he/she been properly classified as an employee, such as the right to sue the employer for wrongful termination, discrimination, retaliation and/or unlawful harassment, for example.

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Jay G. Putnam is a Petaluma labor lawyer who has specialized in representing California employers for over three decades. His practice is devoted to preventing lawsuits against his clients, without sacrificing workplace authority or management prerogatives.

While no one can guarantee a future free of lawsuits, Putnam has compiled a remarkable record of success: Not one employer-client has been sued in 36 years with his system of precautions in place.

For those clients who have arrived with pending lawsuits, Putnam has established an excellent track record of success as well. 

You are invited to visit Mr. Putnam’s website, where you will find in-depth discussion of the most common mistakes made by California employers, and how to avoid them. www.jaygputnam.com/articles-by-jay-g-putnam/