Back in March, it was reported that Mary-Kate and Ashley Olsen, the twins formerly of Full House fame who now own a successful fashion company, settled a wage lawsuit by former interns. The interns claimed that they worked up to 50 hours per week doing the same type of work as paid employees. The lawsuit reportedly settled for $140,000, with 185 interns receiving a cut of the proceeds.
While they denied the allegations in the lawsuit, the Olsen twins aren't the first employers to get in trouble (at least in the sense of being sued) when it comes to unpaid interns. It has been reported that Conde Nast has paid out settlements to 7500 unpaid interns and ended its internship program, and CBS was sued in a 2015 class action lawsuit by its interns as well.
The Fair Labor Standards Act (FLSA) includes minimum wage and overtime requirements for most employees (referred to as “nonexempt” employees). Employers can get in trouble when they don't pay interns who, for FLSA purposes, are actually considered to be employees entitled to minimum wage and overtime pay. The Department of Labor issued a fact sheet laying out six factors that, if met, would mean there is no employment relationship and the individual can be treated as an unpaid intern. The Second Circuit (the federal appeals court encompassing New York), however, has held that all six factors do not have to be met but are merely relevant to determining who is the “primary beneficiary” of the relationship – the intern or the employer? If it's the employer, then the intern is really an employee who must be paid. The Second Circuit case is Glatt v. Fox Searchlight Pictures.
New York State also has minimum wage and overtime requirements and has issued its own guidance on this issue. The guidance for for-profit companies can be found here. The guidance for not-for-profits can be found here.