Summer Interns- What You Need to Know to Avoid Trouble

Memorial Day weekend is right around the corner.  Since it is traditionally considered the unofficial start of summer and most schools have begun their summer break, I thought it would be a good idea to remind my readers of the rules that apply to the hiring of interns. If those rules are not followed, a business can find itself in trouble with the U.S. Department of Labor (the “USDOL”) and potentially, the IRS.

My last post on this subject was two years ago and the rules governing the hiring and compensation of interns remain essentially the same.  The issue that poses the biggest risk of trouble for an employer is whether an intern will be compensated and if so, how much compensation they will be paid.

If the intern is not paid anything or less than the current minimum wage for the time they spend working for a business, the burden is on the business to prove that the intern was in fact a “trainee”, who does not have to be paid anything for their services, and not an “employee”, who must be paid at least the minimum wage for their services.  That burden is higher for a profit-making business because the USDOL, which is responsible for enforcing the minimum wage law, will presume that such an intern is an “employee”.   The USDOL has issued a Fact Sheet in which it establishes six criteria that must be met to prove an intern is a “trainee.” (Click here for an article I have written that discusses those criteria.)  The bottom line is that if the business owner derives any significant benefit from the services of an intern, that intern will most likely be considered an “employee” by the USDOL for purposes of the minimum wage law.

The fact that the intern willingly agreed to perform the services in question without being paid any compensation or in exchange for small stipend, the amount of which is not tied to how many hours they may work is irrelevant, as the United States Supreme Court has held that an individual can not waive their rights under the minimum wage law. Thus, an intern could decide, up to three years later, that maybe they should have been paid the full minimum wage for all the services they performed for a business, if for whatever reason they now need the money or have a grievance of any kind against the business.

For a business that is considering hiring someone who is under 18 years of age, both the federal and state governments impose restrictions on the types of activities in which such a person can engage and for how long each day, regardless of whether they are a “trainee” or an “employee.”  The main difference between the two sets of restrictions is that Georgia law requires a person under 18 to get an employment certificate, or work permit, from the school they last attended or the local county school superintendent.  (Click here for a fact sheet from the USDOL on this subject and here for a summary of the restrictions imposed by federal and state law from the Georgia Department of Labor.)  As noted at the bottom of the Georgia Department of Labor’s summary sheet, if the child is working in a business owned by his or her parent or guardian, only the restrictions on prohibited occupations will apply.

A summer internship can be beneficial for both the intern and the employer, but to avoid trouble, the employer needs to know and follow the above rules.

Avoid, Deny, Defend – What is it?

Avoid, Deny, Defend is a program developed by the ALERRT Center at Texas State University for training people about what to do if they are involved in an active shooter incident (an individual is actively engaged in trying to kill other people).  According to an FBI study of such incidents, there were 160 from 2000 through 2013 and the rate at which they occurred steadily increased during that time period.  Recent events indicate that rise in the rate is still occurring.  The fact that slightly less than half of all such incidents took place in a commercial setting should be of concern to all business owners, including agency owners.  The “it can’t happen here” belief is refuted by the fact that such incidents occurred in 40 states and the District of Columbia during the study period.

That belief leaves most people unprepared when an active shooting occurs and leads to an increase in the death toll.  The Avoid, Deny, Defend program seeks to inform people what they should do in such situations to protect themselves.  As with many such programs, it seems to be mostly common sense when you think about it.  First, you should AVOID the shooter by seeking to get away from his or her location.  This requires a person to be aware of their surroundings and in particular, where the exits are.  If you can’t get away from the shooter’s location, DENY him or her an opportunity to shoot you by putting as many barriers (e.g., closed and preferably locked and barricaded doors) between you and the shooter as possible, turning off the lights, hiding from sight behind whatever large object (e.g., desk) you can find, and turning off your smart phone.  Only if you can’t avoid the shooter or deny him or her an opportunity to shoot you should you DEFEND.  In doing so, be aggressive and don’t fight fair.  This is about survival, so there are no rules.

The ALERRT Center website has a video that demonstrates the principles of the Avoid, Deny, Defend program.  The FBI website also has a video on this subject that can be downloaded.  It’s title is more direct, “Run, Hide, Fight.”  The Department of Homeland Security has an extensive resource page on this subject, that includes links to an online course for managers and employees and a 90 minute webinar on how to prepare for and respond to an active shooter situation.

Like life insurance or in my profession, Wills, this is a subject most people don’t want to think about, much less discuss.  While those two things are important, the failure to take action with respect to them is not life threatening.  Not knowing what to do if confronted with an active shooter situation can be fatal.  Offering information on this subject to your commercial lines customers can be another way to distinguish yourself from other agents and agencies.  It can be part of your discussion with such customers about their business risks and how best to insure and otherwise protect against them.  If done in partnership with your local police department or even on your own, a presentation on this subject can put you in front of potential new customers, for both commercial and personal lines policies.

Stated Value Policy Changes & New Trap for the Unwary

Last week, Governor Nathan Deal signed into law an important change to Georgia’s Stated Value policy law.  A Stated Value, or Valued Policy, is one which provides coverage for buildings in a specified amount, which amount will be paid upon the complete destruction of the building without any proof by the insured that the building was actually worth the policy amount.  What is such a policy and when it will pay off are governed by statute.  In Georgia, that statute is O.C.G.A. Section 33-32-5.

In an earlier post, I explained the requirements that must be met for such a policy and pointed out a trap for the unwary insurance agent who advises the insured on what value to assign to the building covered by the policy.  One of the requirements for such a policy was that it must be “issued to a natural person or persons.”  This presented a problem for people who own residential rental property and follow their attorney’s advice to transfer ownership of such property to a limited liability company or other legal entity to protect their personal assets from any claims that may arise out of the rental of the property.  Since a policy covering a building can only be issued to its owner, residential rental property that was owned by a limited liability company or other legal entity could not be covered by a Stated Value policy.  

The bill recently signed into law by Governor Deal expanded the entities to which a Stated Value policy could be issued to include ” any legal entity wholly owned by a natural person or persons.”  Effective on July 1, 2016, one or two residential family buildings or other structures in Georgia that are owned by a legal entity that is in turn wholly owned by one or more individuals can be covered by a Stated Value policy.

I am sure most insurance agents realize that where residential real property is being rented, a commercial general liability policy must be obtained instead of a homeowner’s policy to provide liability protection for the property owner.  However, what many agents may not realize is that even a commercial general liability policy will not provide complete protection for the owner.  This point is illustrated by a decision the Georgia Supreme Court rendered in March of this year.  In that decision, the court held that the absolute pollution exclusion in the CGL policy in question in that case meant the policy did not cover a claim by the tenant that her child was injured due to exposure to paint chips containing lead.  In its opinion, the court cited an earlier decision that had applied such an exclusion to a claim of injury by a tenant due to carbon monoxide poisoning as the result of a faulty furnace.  

Lead paint chips and carbon monoxide exposure are two conditions that could easily occur in situations involving the rental of residential real property.  A recent webinar presented by the IIABA explores the scope of the absolute pollution exclusion in this context and points out that it covers much more than what would ordinarily be thought of as hazardous substances, fungus, mold, and bacteria being the most common.

As with any other policy, an agent should be aware of any gaps in coverage provided by a CGL policy in each context in which it will be used and decide how best to fill those gaps.  Otherwise, the agent runs a substantial risk of being the subject of an E&O claim.