Tuesday, May 21, 2013

Can For-Profit Businesses Use Unpaid Interns in New York?

Even though I have previously written about it, I keep getting many questions regarding whether unpaid interns can work for a for-profit business. My conclusion is YES BUT… it can be risky for the business. In New York, interns can do an unpaid internship under two circumstances: (1) if the intern is a student obtaining vocational experience for school credit, or (2) if the intern satisfies the 11 criteria for a “trainee” who is not in an employment relationship. Interns who do not fit within either of the two categories are in an employment relationship and, according to the New York State Minimum Wage Act and the related Orders, must be paid at least a minimum wage. I would also like to add that even if the intern is getting school credit, it is still important to satisfy the 11 criteria listed below.

Here is a brief discussion of the criteria (starting with the six federal ones first):

1. Training Similar to an Educational Environment. The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school (the student is under continued and direct supervision by employees of the business). An unpaid internship must serve as an educational exercise that applies old and new skills to real-world scenarios. As such, businesses offering unpaid internships should create an instructional environment that offers interns opportunity to learn skills, without necessarily completing integral business functions. The program should welcome participants to take their time understanding and completing their tasks, while also learning from their mistakes. Internships that offer educational credits, whether through third party or in-house classes, as well as instructional supervision of interns while they complete tasks, comply with this first criterion.

2. Benefit of the Trainee. The training is for the benefit of the interns. Such placements are not made to meet the labor needs of the business. The unpaid intern must be the primary beneficiary of the internship, while the employer may get some tangential benefits. If the employer’s sole focus is on the intern’s development throughout the training program, then the second criterion is met. Moreover, an intern’s receipt of college credit is a strong indicator of the beneficial aspect of the internship program.

3. Displacement of Regular Employees and Close Supervision. The trainees or students do not displace regular employees, employees have not been relieved of assigned duties, and the students are not performing services that, although not ordinarily performed by employees, clearly are of benefit to the business. Any work they may do is performed under close supervision. In determining whether an internship program is lawful, the NY Department of Labor may compare the supervision given to employees with that given to the interns. If the supervision is heavier on the interns and significantly lighter on the employees, then the program will pass this criterion. Furthermore, an internship that involves job shadow opportunities, where interns can closely observe how employees work, will be evidence of a lawful unpaid internship.

4. Employer Advantage. The employer that provides the training derives no immediate advantages from the activities of the trainees or students, and on occasion, operations may actually be impeded. The employer’s motivation for offering the unpaid internship must not be premised on acquiring a benefit or advantage. Instead, the employer must be willing to dedicate its resources for providing a benefit to the trainee in the form of developing the trainee’s work skills or substantive knowledge. Tangential benefits that an employer may get are fine, so long as they result from the employer’s efforts to train the interns.

5. Job Entitlement. The trainees or students are not necessarily entitled to a job at the conclusion of the training period and are free to take employment elsewhere in the same field. An unpaid internship program should be of fixed duration, and cannot foster an entitlement to a salaried job after completion of the program. The interns should sign a contract acknowledging that they do not expect future employment. Although written agreements are given little weight by the NY Department of Labor, they can help satisfy this criterion.

6. Wage Entitlement. The trainees or students understand and have been notified in writing that they are not entitled to wages for the time spent in training and are not considered to be employees for minimum wage purposes. Prior to commencement of the internship, all interns should be given a written notice that the internship is unpaid.

The New York Department of Labor has added five more criteria to the list, requiring that all of the federal plus the five New York criteria be satisfied:

7. Knowledge and Expertise of Trainers. Any clinical training is performed under the supervision and direction of individuals knowledgeable and experienced in the activities being performed. Additionally, the employees must be competent enough to provide instruction and training to the trainees, as would a teacher in a classroom.

8. Employee Benefits. The trainees or students do not receive employee benefits. Benefits include, but are not limited to, health and dental insurance, pension or retirement accounts, or discounted or free employer goods or services. If the internship is affiliated with a third party instructional program, then a weekly stipend is permissible.

9. Generalized Training. The training is general, so as to qualify the trainees or students to work in any similar business, rather than designed specifically for a job with the employer offering the program. To comply with this requirement, the training should be general enough to allow the intern to obtain work in the same field with a different employer in the future.

10. Screening Process. The screening process for the internship program is not the same as for employment, and does not appear to be for that purpose, but involves only criteria relevant for admission to an independent educational program. The employer’s screening process cannot resemble the process by which it would choose employees. Instead, an applicant for the internship program must be a good trainee candidate in that the employer feels comfortable instructing him or her, rather than placing the applicant within a certain role in the business. The intern recruitment process must be completely independent from the employer’s employee recruitment.

11. Advertisements, Postings, and Solicitations. Advertisements for the program are couched clearly in terms of education or training, rather than employment, although employers may indicate that qualified graduates may be considered for employment. Any advertising or solicitation conducted by the business for the internship program must clearly indicate, so as to avoid any misunderstanding, that the program is educational and only offers a training opportunity. Any incidental stipends generally should not be included in the advertisements, postings or solicitations.

If all eleven criteria are met, the individual is an intern, gaining valuable hands-on experience and is not an employee. However, in practice, some of these criteria are hard (if not impossible) to meet. In my opinion, #4 above may be the most difficult one to satisfy once the results of on-the-job training start to materialize. The federal Department of Labor has confirmed that in these difficult economic times their particular focus is on preventing employers from taking advantage of the unemployed, who are often willing to work for free just to get “a foot in the door.” Therefore, extreme caution should be exercised when hiring unpaid interns.

This article is not a legal advice, and was written for general informational purposes only. If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga. Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.

Saturday, May 18, 2013

Crowdfunding Update

We are still patiently waiting for the SEC to develop rules implementing the crowdfunding provisions of the JOBS Act. While we are waiting, the industry prepares for the crowdfunding transactions. Recently, two interesting articles about crowdfunding caught my attention. First, thecrowdcafe.com published an article regarding the status of different crowdfunding platforms. According to the article, many crowdfunding platforms are raising money in preparation for the launch of their portals for non-accredited investors. Below is the list. The most recent and biggest raise by far is CircleUp getting $7.5 million in a Series A.

Seed Round: $1,500,000
Series A: $7,500,000 
Equity platform; San Francisco, CA 

Series A: $850,000 
Equity platform + ancillary products (white labeling being one); Minneapolis, MN 

Seed Round: ~$500,000 
Equity platform; UK 

Seed Round: $400,000 
Equity platform; Los Angeles, CA 

Series A: $1,150,000 
Equity platform; Miami, FL 

Pre-Seed: $529,000 
Seed Round: $6,000,000  
Equity platform; San Francisco, CA 

Seed Round: $880,000 
White labeling platform; Los Angeles, CA 

Seed Round: $500,000 
Real estate platform; Los Angeles, CA 

Seed Round: ~$193,000 
Revenue-share; Netherlands 
Raised seed round on Symbid, crowdfunding platform based out of the Netherlands 

Seed Round: $2.0M 
Debt platform; Cincinnati, OH 

Seed Round: $550,000 
Equity platform; Cambridge, MA 

Another interesting article that came out on CFO.com discusses what companies can do to prepare for crowdfunding. The concern addressed in the article is that companies may find it difficult to attract VC capital after they raise money through crowdfunding from non-accredited investors. VC investors may be unwilling to deal with numerous small unsophisticated investors. One suggestion is to structure crowdfunding securities so that VCs can subsequently buy out such investors at a certain multiple of their investment. This would provide for a good return on investment for the earlier crowdfund investors, as well as allow VCs to control the investor group. Another proposal is to pool these investors into a collective, so that they vote as a group instead of individually. This may give them more leverage and make it easier for the company and the VCs to manage the investor pool. 

As different methods and approached get tested by various portals for accredited and non-accredited investors, I can’t wait to see how the world of private placements will change once start-ups will be able to raise capital through general solicitation and advertising through crowdfunding portals.

This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.

Sunday, May 12, 2013

Who Owns #Hashtags?

Proliferation of social media continues to stretch the boundaries of the law and its definitions. It prompts us to apply the proven legal concepts to new technological and social phenomena with no clear and well-defined answers.

A good example is a question of whether Twitter hashtags are anybody’s intellectual property. If yes, then can a non-descriptive hashtag be used as a trademark? Does it mean that we need to expand our trademark searches to include Twitter hashtags?

First, let’s look at the definition of a hashtag. A hashtag is a word preceded by a “#” symbol that was first proposed by Chris Messina to tag topics of interest. Now, hashtags are mostly used to identify discussion forums. If a hashtag becomes popular, it will appear in the “Trends” area of the user’s homepage. Hashtags are used by users to find certain discussion topics, follow these discussions and connect with other users with similar interests.

As far as I know, it is not possible to purchase a hashtag, but one can purchase a hashtag search result through Twitter’s Promoted Tweets product.

Hastags are also frequently used to advertise and promote products, services, events and campaigns. One such example is #OccupyWallStreet. It is also quite popular to use the corporate brand name or trademark as a hashtag to comment on or promote the brand. At times, however, such social campaigns can get away from the company’s original intended use. For example, McDonalds had to pull its hashtag #McDstories only two hours after introducing it, as people starting sharing quite different mcdstories from the ones originally intended by the company. A similar story can be told about Wendy’s #Here TheBeef hashtag.

Although the widespread use of descriptive hashtags as trademarks is unlikely, some companies have started to trademark their hashtags. Trademark law divides trademarks into 45 classes, and the same name or logo can be trademarked by different persons in different classes. It is still unclear, however, how will this use and ability to trademark the same name or a logo but in different classes apply to trademarked hashtags. One would need to register hashtag applications in a particular class of products or services rather than in the class for online forums and communications.

There is also a growing practice of using corporate names as hashtags. The question then becomes: can the corporate name hashtag be used by other Twitter users or does the right to its use belong solely to the company? The answer can be found in Twitter’s Trademark Policy: “Using a company or business name, logo, or other trademark-protected materials in a manner that may mislead or confuse others with regard to its brand or business affiliation may be considered a trademark policy violation.” So, Twitter users should be careful about using other companies’ names as hashtags to promote their own brands or to suggest affiliation, as this may violate Twitter’s policy.

In conclusion, it is still difficult to draw clear boundaries of whether and when a particular hashtag can be used, but one thing is clear: hashtags are available to all Twitter users to use so long as the use does not violate the Twitter Trademark Policy.

This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.