it's your legacy... Entrustet HIWI Blog

Legalities of Unpaid Internships

(Part 4 of a summer-long series by Entrustet co-founder Jesse Davis)

There are two principal legal issues you’ll face with regards to running an unpaid Intern Program. The first issue is making sure that you’re not breaking the law insofar as labor rules are concerned. And the second issue is drafting some sort of contract between your company and the intern to ensure some basic legal boundaries exist in the relationship.

Is your intern program legal?

There has been some noise recently in the press about companies taking advantage of unpaid interns, which may have some entrepreneurs too scared to start an Intern Program in their company. Well, I’m not a lawyer, so don’t take my legal interpretations for the final legal word on this topic. That said, I believe that following some basic rules as well as having the right general attitude toward the program will be sufficient.

Legally speaking, you want the Interns to technically be considered “trainees” instead of “employees.” The Fair Labor Standards Act (FLSA) states that any person who is considered an employee must be paid at least local minimum wage with overtime benefits. But if, however, the person is considered a “trainee,” then the pay rules are not in effect. To determine if someone is an employee or a trainee, The U.S. Department of Labor’s Wage and Hour Division (WHD) has developed 6 rules. What follows are the 6 rules and my interpretations of these 6 rules that must be followed to consider someone a “trainee:”

1. The training, even though it includes actual operation of the facilities of the employer, is similar to what would be given in a vocational school or academic educational instruction. Okay, I believe that you can make the case for any intern task being something that they’d learn in a hands-on classroom. For instance, writing a press kit (communications classes) or making financial projections (accounting/entrepreneurship classes).
2. The training is for the benefit of the trainees. Well, considering that I make it well known to the interns that they can come and go as freely as they want, I would imagine that they believe the training they receive here is for their own benefit as much or more than the benefit to the company. Also, these interns are getting great hands-on experience, so clearly it is for their benefit.
3. The trainees do not displace regular employees, but work under their close observation. This is pretty self-explanatory. In our case, they did not displace anyone, and they work under the close observation of myself and co-founder, Nate Lustig.
4. The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded. Seriously?
5. The trainees are not necessarily entitled to a job at the conclusion of the training period. True.
6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training. True.
   

Now that you’re sure you are following the legal rules, you need to have the right general attitude toward workload and hours. By general attitude, I mean you must understand deeply the fact that interns can and should work as little or as much as they’d like to. If you don’t put any stringent rules on hours, deadlines, and workload, then chances are you’ll never have to worry about working an unpaid intern beyond a legally acceptable limit. I tell and re-tell all the interns all the time that they should only come into this office when they personally want to work, and I will find work for them to do. So I stay away from giving them projects that require hard deadlines, as it could lead to them working beyond the level of effort they signed up for.

Drafting a contract for your interns to sign

You probably want the interns to sign something basically saying they work for you, you have rights to their inventions, and which includes some sort of confidentiality agreement. I’m a big believer in free information. Therefore, instead of trying to explain things to build into your intern contract, I’ll just show you an example contract you can use to help draft your own. I MUST SAY CLEARLY THAT THIS IS NOT INTENDED FOR YOU TO TAKE AND USE AS IS IN YOUR COMPANY. ANY AND ALL CONTRACTS SHOULD BE SHOWN TO AND APPROVED BY YOUR LAWYER BEFORE USING. THIS CONTRACT BELOW IS JUST MEANT TO SERVE AS AN EXAMPLE TO SHOW SOME KEY POINTS TO CONSIDER COVERING IN YOUR CONTRACT.

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INTERN’S CONFIDENTIALITY AND INTELLECTUAL PROPERTY AGREEMENT

THIS AGREEMENT is made effective _____________ (date), by and between (your company here), a (insert state here) limited liability company (“Employer”) and ______________________, an individual and resident of the State of (insert state here) (“Intern”).

NOW, THEREFORE, in consideration of the mutual promises and agreements contained in this Agreement, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.            Confidential Information; Trade Secrets.

(a)  Definitions.

(1)   “Confidential Information”. Confidential Information means information developed or otherwise owned by Company, which is not readily available to the public, and which is treated as confidential by Company and the unauthorized disclosure of which would be detrimental to Company’s interests.  Confidential Information may include, but is not limited to, computer programs and software, methods, techniques, inventions, formulas, patterns, devices and compilations, as well as information relating to Company’s finances and financing plans, research and development plans, marketing plans and techniques, licensing plans, methods of doing business, price lists and pricing information, and information regarding Company’s customers, suppliers, joint developers, licensees, licensors, and competitors.  Confidential Information includes information developed by Intern in connection with his employment pursuant to this Agreement.  Confidential Information does not include information which (i) is or becomes generally available to the public or which (ii) is previously known or which becomes known to Intern from a source other than Company without violation of any obligation of confidentiality.

(2)  “Trade Secret”. Trade Secret means information, including, without limitation, formulas, patterns, compilations, programs, devices, methods, techniques and processes which derive independent economic value, actual or potential, by being (i) known to Company and not generally known by others; and (ii) not readily ascertainable by proper means by others who can obtain economic value from the disclosure or use thereof; and are subject to Company’s reasonable efforts to maintain their secrecy.

(b)  Non-Disclosure of Trade Secrets and Confidential Information.

(1)  Access to Confidential Information. Intern acknowledges that in the course of employment by Company, Intern will receive, use, have access to and become familiar with, and/or participate in the creation of Confidential Information and Trade Secrets owned or possessed by Company and/or used in connection with Company’s business.

(2)  Obligations Not to Disclose or Use Confidential Information. Intern agrees not to disclose to others, or take or use for Intern’s own purposes or for the purposes of others, during the term of employment and for a period of two years thereafter, any Confidential Information or Trade Secret.  Intern agree that Intern’s obligations not to disclose or use Confidential Information shall equally apply to:  (i) Confidential Information developed by others at Company; (ii) Confidential Information that may be conceived, originated, discovered or developed by Intern; and (iii) Confidential Information belonging to third parties and in Company’s possession.  Intern’s obligations under this Section apply to, and are intended to prevent, the direct or indirect disclosure of Confidential Information to others where disclosure would reasonably be considered to be useful to Company’s competitors or to a third party to become a competitor based in whole or in part on such disclosure of Confidential Information.

(3)  Limitations of Intern’s Obligations. Intern’s obligations do not apply to disclosures of Confidential Information or Trade Secrets to authorized Interns of Company, and to Company’s agents or such other third parties who need such information in furtherance of Company’s business and who are bound to maintain the confidentiality of the Confidential Information and to whom Intern disclosure of Confidential Information or Trade Secrets is authorized by Company.

(4)  Intern’s Treatment of Confidential Information of Others. Intern agrees not to disclose to Company or use on Company’s behalf any information owned or possessed by a third party and held in confidence by such third party, which information Intern may have gained access either with or without such third party’s permission, and which information Company is not entitled to possess.  Intern understands that unauthorized disclosure of Confidential Information owned or possessed by a third party to Company could be grounds for termination.

(5)  Effective Time Period of Intern’s Obligations. Intern obligations under this Section will apply during Intern’s employment by Company and for two years thereafter, but only as long as the Confidential Information remains not generally known to, and not readily ascertainable through proper means by Company’s competitors.  Provided, however, nothing in this Agreement shall limit the time periods during which Intern and others shall not misappropriate or threaten to misappropriate Company’s Trade Secrets as protected under Wisconsin or other applicable law.

(6)  Intern’s Post-Employment Use of “Know-How”. Notwithstanding any other provisions of this Agreement, nothing in this Agreement shall be deemed to prohibit Intern’s post-employment use of Intern’s general know-how that Intern acquires or enhances during Intern’s employment by Company, as such term “know-how” is defined under Wisconsin or other applicable law, and as long as such use does not require the use of any Trade Secret protected under Wisconsin or other applicable law.

2.            Rights in Inventions and Works of Authorship.

(a)  Definitions.

(1)  “Invention”.  Invention means any discovery, improvement, idea or creation (whether or not described in writing or reduced to practice, and whether or not patentable) made solely by Intern or by Intern jointly with others, while performing work within the scope of Intern’s activities pursuant to this Agreement.

(2)  “Work of Authorship”.  Work of Authorship means any literary, graphic, audio or visual work, whether published or unpublished, and whether copyrightable or not, in whatever form and in whatever media, originated solely by Intern or by Intern jointly with others while performing work within the scope of Intern’s activities pursuant to this Agreement.

(b)  Disclosure of Inventions. Intern will disclose promptly and fully to Company all Inventions, Works of Authorship, improvements or discoveries, whether or not patentable, copyrightable or otherwise protectable by like registration, that may be made or conceived by Intern, either solely or jointly with others during Intern’s term of employment by Company and for one year thereafter, whether made or conceived in the course of employment or with the use of Company’s time, material or facilities, and that may be along the lines of Company’s actual or anticipated business, work or investigations of Company, or of the companies that Company owns or controls or that control or own Company, at the time of such invention or creation.

(c)  Ownership of Inventions. Intern agrees that all right, title and interest in and to all Inventions, Works of Authorship, improvements and discoveries subject to Subsection (b), including all patents and/or copyrights that may be associated therewith, shall be and remain the sole and exclusive property of Company.  During the term of Intern’s employment by Company or at any time thereafter, Intern, or Intern’s personal representatives or assigns, shall at Company’s request and without further compensation promptly execute any and all patent applications, copyright registration applications, assignments and other instruments that Company deems necessary to assign and convey to Company, its successors and assigns, and to maintain and enforce thereafter, at Company’s expense, all right, title and interest in and to any Inventions or Works of Authorship subject to Subsection (b) throughout the world, as Company may in its sole discretion require.  Intern agree to assist Company during and subsequent to employment in every way, at Company’s expense, in any controversy or legal proceeding relating to such Inventions, Works of Authorship, improvements or discoveries, or to the patents or registrations resulting therefrom.

(d)  Exempt Inventions. Attached to this Agreement  is a list all inventions and works of authorship relevant to the subject matter of Intern’s employment by Company that have been made or conceived or first reduced to practice by Intern, alone or jointly with others, prior to Intern’s employment by Company, that are hereby removed from the operation of this Agreement.  If no such list is attached to this Agreement, Intern represents that Intern had no such inventions or works of authorship at the time of the commencement of Intern’s employment by Company.

(e)  Records of Innovative Activities. Intern will keep and maintain adequate and current written records of all of Intern’s activities relating to the creation or development of Inventions and Works of Authorship, in the form of notes, sketches, drawings, data and reports relating thereto, which records shall be and remain the property of Company, shall be available to Company at all times, and shall remain on the premises of Company at all times.  These are not to be shared verbally, optically, electronically or physically with anyone outside of Company without written permission from an officer of Company.

(f)  Works of Authorship. Any work performed by Intern under this Agreement shall be considered a “Work Made for Hire” as defined in the U.S. Copyright laws, and shall be owned by and for the express benefit of Company.  In the event it should be established that such work does not qualify as a Work made for Hire, Intern agrees to and does hereby assign to Company all of its right, title, and interest in such work product including, but not limited to, all copyrights, patents, trademarks, and other proprietary rights.

(g)  Intern’s Warranties. Intern warrants that Intern is not now under any contract or obligation limiting in any way the activities he/she may pursue for Company or covering the disclosure or disposal of Inventions or Works of Authorship such as would in any way prevent Intern from carrying out the spirit of this Agreement.

3.            General Provisions.

(a)  Protection and Enforcement. Both during the term of this Agreement and thereafter, Intern shall fully cooperate with Company in the protection and enforcement of any intellectual property rights that may derive as a result of the services performed by Intern under the terms of this Agreement, including the execution, acknowledgment, and delivery to Company all documents or papers that may be necessary to enable Company to publish or protect any inventions, improvements, or ideas.

(b) Term; Survival. The term of this Agreement shall commence on the date hereof and shall continue so long as Intern is employed by the Company in any capacity.  The covenants and agreements set forth in Sections 1 and 2 shall survive the termination of this Agreement for the periods stated therein..

(c)  Entire Agreement. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of Intern by Company and contains all of the covenants and agreements between the parties with respect to such employment.  The parties acknowledge that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, that are not embodied herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding.  Any modification of this Agreement will be effective only if it is in writing signed by the party to be bound

(d) Severability. In any provision of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

(e)  Attorneys’ Fees. In the event that any action if filed in relation to this Agreement, the unsuccessful party in action shall pay to the successful party, in addition to all the sums that either party may be called on to pay, a reasonable sum for the successful party’s attorneys’ fees.

(f)  Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Wisconsin, without giving effect to its conflicts of laws provisions.

(g)  Notices. All notices under this Agreement shall be in writing and any notice shall be considered delivered in all respects when personally delivered or when it has been mailed first class, postage prepaid, addressed to the last known address of the addressee.

(h)  No Waiver. No waiver by Company at any time of any breach by Intern of, or compliance with, any condition or provision of this Agreement to be performed by Intern shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or any prior or subsequent time.

(i)  Assignment. This Agreement may not be assigned in whole or in part by either party without the prior written consent of the other party, except that it may be assigned by Company to any person or business entity to whom Company may transfer substantially all of its business and assets.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.

(insert your company’s name here)

By:            ____________________________________________

______________________, _______________(Title)

INTERN

_____________________________________________

_____________________________ (Print Name)

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Next up, part 5 of the series: Finding and Developing Individuals’ Strengths

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how to run a good intern program · how to run an intern program · intern program · Intern Program Tips · startup intern programs