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12 Employee Company hit with $550,000 in penalties for misclassifying interns!

Private equity firm to pay over $550,000 in back wages and penalties over misclassifying employees as interns — MASSACHUSETTS — Employee misclassification

A Boston private equity firm will pay more than half a million dollars in penalties and wages to 174 current and former employees in a settlement with the AG’s Office over the employer’s improper classification of employees as interns and its failure to pay those employees minimum wage and to keep proper employment records, according to Attorney General Maura Healey in a recent announcement.

Search Fund Accelerator (SFA), its President Timothy Bovard and Treasurer Jeremy Silverman were issued two citations totaling $550,187 in restitution and penalties for violating the state’s wage and hour laws.

“This private equity firm should have paid its employees, but instead treated them like unpaid interns,” said AG Healey. “I commend the employees at SFA for speaking up for themselves and their co-workers. We encourage all others who believe they are part of an illegal internship program to contact my office so we can ensure these workers know their rights.”

The AG’s Fair Labor Division began an investigation after receiving an anonymous complaint from a current SFA employee alleging he and other employees were in an improper, unpaid internship program. A review of SFA’s payroll records over the 22-month period of July 2015 to May 2017 showed SFA hired a disproportionate number of employees as unpaid interns—more than 180, compared to 12 known paid employees—and many “interns” worked more than 30 hours per week, regularly performed duties similar to those performed by paid employees, and did not receive school credit for their work.

Under Massachusetts’ Minimum Wage Law, unpaid internship programs must align with the Massachusetts Department of Labor Standards’ six-part test and be sufficiently associated with an educational institution in order to be defined as a “training program” exempt from minimum wage. The six-part test requires the training interns receive through an internship:


Is similar to that which would be given in an educational environment, even though it includes actual operation of the employer’s facilities;


Is for the benefit of the intern;


Does not displace regular employees, but the intern works under close supervision of existing staff;


Provides the employer with no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;


Does not entitle the intern to a job at the conclusion of the training period; and


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 investigation found that SFA’s “interns” worked as employees and should have been paid a minimum wage of $9 per hour in 2015, $10 per hour in 2016, and $11 per hour in 2017 during the time period in question. Additionally, SFA did not maintain true and accurate timekeeping records for its employees as required by law.

Individuals may volunteer their services for nonprofit organizations and government agencies, so long as certain conditions are met. In general, the activity should be less than full-time, should not displace regular employees, and must be offered freely without pressure or coercion.

SFA has cooperated with the AG Office’s investigation, and agreed to make changes to its internship program as part of the settlement. Former and current employees will receive between $20 and $13,341, with the average worker receiving just over $2,100 in restitution as a result of the settlement.

AG Healey’s Fair Labor Division is responsible for enforcing state laws regulating the payment of wages, including prevailing wage, minimum wage, earned sick time and overtime laws. This matter was handled by Assistant Attorney General Drew Cahill and Investigator Huong Phan, both of AG Healey’s Fair Labor Division.

Source: Commonwealth of Massachusetts, Office of the Attorney General, May 24, 2018, Press release.

About the author, Rhamy

Rhamy grew up watching and working with his mother and grandmother in the seniors insurance market. This familiarity with the struggles faced by people trying to navigate the incredibly complicated and heavily regulated healthcare market led him to start Poplar Financial while working on his degree at the University of Memphis. After completing his MBA and Bachelors in Finance and Economics, Rhamy guided Poplar Financial through the disruptive opportunity that is the Affordable Care Act. Since then Poplar Financial has received numerous awards from major insurance carriers, and has completed its fourth year in a row of doubling in size. Now his team focuses on the processes around human resources, and specializes in providing companies with between 20 and 1000 employees with the payroll, benefits, and HR needs.

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