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PE firm and execs owe $550K after misclassifying employees as interns

Misclassification of employees as interns resulted in a Boston-based private equity fund and two of its executives receiving citations totaling $550,187 for violating Massachusetts wage and hour laws, the Massachusetts Attorney General’s Office announced last month.

An investigation of the firm, Search Fund Accelerator, began after the Attorney General’s Office received an anonymous complaint from an employee.

Search Fund Accelerator hired more than 180 unpaid interns over a 22-month period from July 2015 to May 2017 compared to 12 known paid employees, according to the Attorney General’s Office. Many of the interns worked more than 30 hours per week, performed duties similar to those performed by paid employees and did not receive school credit for their work. In many companies, interns are seen as a valuable source of contingent labor and often converted on a temp-to-perm basis.

“This private equity firm should have paid its employees, but instead treated them like unpaid interns,” Attorney General Maura Healey said in a statement.

In Massachusetts, intern programs must be associated with an educational institution and they must meet a six-part test:

  1. Is similar to that which would be given in an educational environment, even though it includes actual operation of the employer’s facilities.
  2. Is for the benefit of the intern.
  3. Does not displace regular employees, but the intern works under close supervision of existing staff.
  4. Provides the employer with no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded.
  5. Does not entitle the intern to a job at the conclusion of the training period.
  6. Is based on a mutual understanding between the employer and the intern that the trainee is not entitled to wages for the time spent in training.”

The Attorney General’s Office also noted that Search Fund Accelerator did not maintain accurate timekeeping records for its employees.

Under the citations, former and current employees will receive between $20 and $13,341 with the average worker receiving just over $2,100.

The Attorney General’s Office also noted that individuals may volunteer for nonprofit organizations and government agencies as long as certain conditions are met, such as the activity should be less than full-time, should not displace regular employees and must be offered freely without pressure or coercion.

State and federal laws on interns can differ. Employment law attorney David Kushner writes in an article that the federal government recently changes how it classifies interns, but employers should still tread carefully.

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