In the summer of 2009, Oregon media outlets were reporting on a labor dispute between a company that specializes in installing solar panels and two men who claimed they should have been paid for installation work they did as unpaid “interns” for the company.
The labor dispute was resolved, the men received some pay, and the company stopped using unpaid interns.
But, although there were no reported complaints over the workmanship, one wonders how the purchasers of the panels--and the company’s liability insurer--would have reacted had they known that at least some of the panels were being installed by unpaid interns.
The use of unpaid labor, often referred to as “internships,” has reportedly increased during the “Great Recession.”
Media outlets report a dramatic increase in the number of internships among college students. According to the National Association of Colleges and Employers (NACE), 83% of graduating seniors held a paid or unpaid internship in 2008, up from just 9% in 1992.
While most NACE members provide paid internships, other sources estimate that 25%-50% of internships are unpaid, and that the percentage of unpaid internships is growing.
In the depressed labor market, a growing number of older workers have taken unpaid internships to learn new skills and stay connected to the job market. Certain enterprises, such as organic farms close to urban areas, have come to rely heavily on unpaid labor to remain viable.
While many internships undoubtedly train people in important skills for entering a line of work, there have been complaints that some have been mind-numbing exercises in data entry, low-level administrative work, and even house-cleaning.
There has been some pushback from unpaid workers, although many are reluctant to complain for fear of being branded as troublemakers.
In 2009, America Online paid compensation to settle a lawsuit by thousands of former “volunteers” who hosted forums and chat room discussions in the 1990s.
The Huffington Post online news service has drawn criticism for its use of lowly-paid contributors, as has the Robert F. Kennedy Center for Justice and Human Rights for its fundraising practice of auctioning off internships.
In the spring of 2010, the U.S. Department of Labor instituted a crackdown on unpaid internships at private companies.
Simply put, it is a violation of the U.S. Fair Labor Standards Act for a for-profit company to utilize volunteer labor. Drawing on standards laid down in a 1947 Supreme Court case, the U.S. Department of Labor (DOL) requires that any unpaid internship at a for-profit company meet the following criteria:
- The training is similar to that in a vocational school or academic institution;
- The training is for the benefit of the intern;
- The intern does not displace regular employees, but works under their close observation;
- The employer derives no immediate advantage from the intern;
- The intern is not entitled to a job at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages.
In an Aril 2010 “fact sheet” addressing employment law issues, the DOL stated that “if an employer uses interns as substitutes for regular workers or to augment its existing workforce during specific time periods, these employees should be paid at least the minimum wage.”
“Conversely, if the employer is providing job shadowing opportunities . . . but the intern performs no or minimal work, the activity is more likely to be viewed as a bona fide educational experience,” the DOL adds.
“On the other hand, if the intern receives the same level of supervision as the employer’s regular workforce, this would suggest an employment relationship, rather than training.”
Largely unreported in the debate over the legality or ethics of unpaid labor is whether the practice adds to an organization’s exposure to general or professional liability claims.
Perhaps that’s as it should be, according to Christopher Boggs, director of education for the Insurance Journal Academy of Insurance and the author of three books on property/casualty coverages.
“Whether there is increased negligence by using unpaid labor is, to me, a non-issue,” Boggs says. “The real issue is, are the people doing the job trained to do the job?
“If the answer is ‘yes,’ then it really doesn’t matter if they are paid or not.”
“In a standard commercial general liability policy, volunteers are among those who are automatically insured,” he adds. “That means volunteers are treated just like employees under a typical policy.
“Also, the named insured is provided vicarious liability protection even if the automatic insureds, employees or volunteers, are not covered for their actions for some reason.”
Most people recognize, however, that volunteer work is fundamentally different from paid employment.
Even when volunteers are theoretically being trained and supervised, people who are not being compensated are typically free to avoid tasks they find distasteful and tedious, even if those tasks are crucial to getting the work done properly.
Internships for college course credit may require that the intern finish the term to receive the credit, but rarely have a “grade” for how well the work was done.
The degree of care and effort put forth by a college intern is largely dependent on his or her personal drive and conscientiousness, and whether he or she desires to have the employer as a reference. If there is no hope or desire for the last, the intern’s effort may be perfunctory.
Perhaps no one is more acquainted with the risks arising from the use of volunteer labor than property/casualty carriers that insure social service organizations that rely heavily on the use of volunteers for their core operations.
It will come as no surprise that, during the recession and its lingering aftermath, social service agencies saw increased demand for their services at a time when their financial resources were depleted.
According to a recent survey by the NonProfit Finance Fund, only 16% of nearly 1,000 non-profit organizations surveyed in 2009 expected to cover their operating expenses that year, and more than half anticipated †
that the recession would have a permanent or long-term effect on them.
“In the current economy, many non-profit organizations have experienced budget issues from declining contributions and reduced government funding,” says Patricia Marzella, a senior underwriter for Swiss Re.
“This has resulted in some downsizing of employed staff and greater reliance on volunteers, while demand for service has increased.”
According to Marzella, one of the principal concern regarding volunteers at non-profits arises when they drive their own vehicles on behalf of the organization, especially when they are driving clients.
In addition, “Claims relating to volunteers working with clients, on site or off, are always a concern,” she says. “While many entities limit the activities of volunteers to office tasks and other non-client activities, many will find themselves in direct contact with clients, assisting and caring for them.
“One-on-one encounters can lead to claims of abuse or neglect.”
Volunteers themselves can make employer’s liability or workers comp claims against the organization, he/she adds, and the organization, in turn, can file D&O claims against volunteer board members.
According to Swiss Re, two principal concerns when underwriting any organization that utilizes volunteers is that underwriters scrutinize the training of volunteers, and that the rating base for liability coverage reflects any expansion of exposure for the activities of volunteers.
“We query our primary company clients to determine how they are evaluating the utilization of volunteers in their insured organizations,” says Marzella. “Does the training extend to volunteers? Do an organization’s policies and procedures address volunteers?”
Among other things, Swiss Re evaluates if insurers require that their insured organizations do the same kind of background checks on volunteers as they do on employees and potential employees.
Where applicable, Swiss Re evaluates that nonprofits require volunteers to have a minimum limit of auto coverage, so that the organization’s auto policy will serve as excess over the driver’s policy.
Also, the company says they evaluate if contracted or volunteer professionals maintain their own liability coverage, with any applicable insurance for the organization serving as excess.
Volunteer Labor
