Besides any ethical considerations about class-discrimination, unpaid internships are illegal unless the intern gets class credit, because it is a violation of minimum wage laws. Calling a job an "unpaid internship" does not revoke the minimum wage laws. However, these laws are not enforced, which results in more and more companies offering unpaid internships...
IANAL, but I believe a strict literal enforcement of minimum-wage laws also prohibits founders working for their own corporation without salary. (Equity doesn't count for minimum wage calculations.)
Much of the bootstrapped-startup culture we celebrate may thus rely on lax enforcement of these laws.
Good point, but only employees must be paid the minimum wage. If you founded the company, you are not an employee because you direct your work. The IRS says an employee is "anyone who performs services for an organization is an employee if the organization can control what will be done and how it will be done" (http://www.irs.gov/charities/article/0,,id=131137,00.html).
But as soon as you incorporate, take on cofounders and investors, and adopt a title, you're essentially working at the direction of the organization. Your equity is likely subject to a vesting schedule and (given the right constellation of agreement among the other founders and investors) you could even be 'let go'.
Also, the IRS doesn't enforce minimum wages and labor laws, so its definitions aren't necessarily relevant. (For example, it will tax equity compensation that doesn't count toward minimum wage calculations.)
So you may be right, but I'm not yet convinced. The strict letter of the law seems to suggest that corporations must pay even their founders minimum wages.
And if there's some 'bright-line' rule that clearly tells us when this is not the case, I've never heard it. (For example, if "5%" is traditionally enough ownership, by statute or administrative ruling, to count someone as an owner rather than employee, that would be very good to know -- you could have exactly 20 equal founders and no investors and still have founders bootstrap with their own donated labor.)
I'm pretty sure it's tricker than that because there are a number of high profile executives with their $1 salaries and now even some of the bank folks that are in non-executive positions that have elected to take no salary. It seems like those would be more prone to scrutiny than unpaid interns.
"In order to qualify as an unpaid internship, the requirement is simple: no work can be performed that is of any benefit at all to the company. That is, you can not deliver mail, sort files, file papers, organize a person’s calendar, conduct market research, write reports, watch television shows and report on them, read scripts, schedule interviews, or any other job that assists the employer in any way in running their business."
