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Capital Factory founder responds to criticism of unpaid internships

(BUSINESS NEWS) Capital Factory founder, Joshua Baer responds to criticism of their recent blog post featuring participating companies’ internship opportunities.

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The center of gravity

Capital Factory is the self-proclaimed “center of gravity” of the tech and entrepreneurial community in Austin, soon to celebrate a decade in operation as an accelerator, incubator, coworking space, and guide for the industry. If you’re in the Austin tech world, you’ve been to one of the many events in their space, from Ignite speaker series, the Austin Diversity Hackathon, Women Epic Office Hours (kind of like speed mentoring), to the Nonprofit Tech Club, or [name any coding language] networking meetup.

In fact, according to founder Joshua Baer, the 40 person team that operates Capital Factory is 75 percent women and is comprised of two lone white males. The opposite of what most tech startups internationally can say.

The scrappy company has endlessly made something out of nothing, so to speak. “We lead by example,” Baer asserts.

Why then is the company currently under fire?

They recently asked all of the companies participating in their program if they had any internships opening up that they could promote for them. Then, they posted the openings, most of which are less than part time. Here is the original internship posting that ignited the debate.

Sounds innocent enough. But some in the Austin community rejected the fact that some of these internships are unpaid.

Ironically, two positions have been commonly taken, both on and off the record. The first is that unpaid internships anywhere exploit people and benefit the company with free labor. The second is that the wealthy are disproportionately advantaged because mommy and daddy can pay their bills while they pad their resume by working for free at a startup.

Baer calls accusations of exploitation “ridiculous” and favoring the rich oxymoronic. He responds by challenging anyone to find an unpaid intern from any of these startups that feels exploited.

Whichever opposing viewpoint you may subscribe to (it exploits people or favors the rich), the ethics are subjective.

What is not subjective is the law

Lawyers tell us the internship postings aren’t clearly illegal, nor are they clearly legal. Baer said that they did not review the listings for legality, but that Capital Factory pays their interns, again, leading by example.

When asked if the tone of the job postings could be the source of the ire, given that they failed to focus on what an intern would learn, rather on what their required skills and duties at the company would be, Baer called this a “learning moment.” As their role is to guide, not operate these companies, he said that perhaps they can help guide their entrepreneurs to write better job descriptions in the future.

What the federal law boils down to is that unpaid interns may not benefit the company financially, and that it cannot be unpaid unless it passes the stringent Department of Labor test of six criteria:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

The DoL goes on to say, “If all of the factors listed above are met, an employment relationship does not exist under the FLSA, and the Act’s minimum wage and overtime provisions do not apply to the intern.” Meanwhile, unpaid internships are pretty kosher in Texas, but they point back to the restrictive federal laws.

Baer calls the whole exercise a “waste of time,” noting that “the Department of Labor isn’t going to enforce this, it’s a waste of their time, they have bigger fish to fry, so it’s not going to change,” several times alluding to the DoL’s focus being on larger companies like IBM, not such tiny early stage startups.

CF also under fire for not enough melanin

Also part of the internship posting are pictures of the teams, most of which are two to 10 people large. Although not exclusively all white males, many complained that the pictures were revealing of the startups present in the Capital Factory ecosystem.

In response, Baer reiterated that they lead by example by being one of the most diverse teams in town, working hard to “combat brogrammer culture.”

Some believe the negative response about diversity is a knee-jerk reaction that every event host is familiar with (there are more men on the panels than women, you sexists!), and every startup has heard (there are no black people on the team, you racists!). Others believe pointing out a lack of diversity is critical in impacting change.

“The Austin startup scene is becoming a parody of itself,” Redditor Travis_Williamson commented. “All of the upper middle class white guys in those photos are just creating shit for themselves at this point.”

Skin and pay aside, what’s the real issue?

The troubling undertone of public and private conversations surrounds the nature of Capital Factory. Since their inception, they’ve been an unquestionable force in the Austin tech world, unavoidable even. Success breeds jealousy and they’re often the victim of vague criticism for that reason.

But this line of conversation is different, more venomous. More substantial.

The legitimacy of the startups in the internship posting is under heavy fire. Mean-spirited comments about their model permeate communities like Reddit where Baer is accuse of being “less of a keen startup motivator and more of a rent queen,” with others saying that if the CF ecosystem is so hot, the companies should be able to at least afford minimum wage, not just an honor badge.

Baer, used to being a target, says the online commenters are “complainers” and brushes off the entire critique.

Baer insists they teach entrepreneurs how to be “resourceful,” and “scrappy,” reiterating that an unpaid intern won’t be the only unpaid person on some of these teams that are being guided to make something out of nothing. It is also important to remember here that Capital Factory doesn’t own or operate these companies, they’re an incubator/accelerator designed to incubate/accelerate.

So although the internship posting was a simple gesture from the actual Capital Factory team toward the companies in their offices, it triggered numerous online and offline debates about unpaid internships, then about diversity. Baer firmly believes they lead by example with a diverse team and paid interns, but with the postings focused on job duties and not on intern learning opportunities (the core tradoff of unpaid internships), it created a vulnerable moment for CF that the internet jumped on.

The future of unpaid internships at CF companies?

Baer argues that a “three person startup can’t barely even pay payroll and doesn’t really even know what they’re doing and are just trying to figure it out? Yeah, they can have unpaid interns, sorry. I don’t think that’s a problem.”

Will Capital Factory reconsider their position on unpaid internships? Absolutely not.

In fact, Baer doubled down, asserting, “I’m not going to discourage them from doing that. I’m going to encourage them to be creative about finding other ways they can not pay for things, or defer paying for things, and do other things that allow them to create something out of nothing, which is what creates jobs for other people and allows them to eventually pay for them.”

#unpaidinterns

Lani is the Chief Operating Officer at The American Genius and sister news outlet, The Real Daily, and has been named in the Inman 100 Most Influential Real Estate Leaders several times, co-authored a book, co-founded BASHH and Austin Digital Jobs, and is a seasoned business writer and editorialist with a penchant for the irreverent.

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2 Comments

2 Comments

  1. Paul O'Brien

    April 20, 2017 at 4:59 pm

    Interesting. There is much to be said for why and whether or not we should be having to reinvent the wheel of entrepreneurship. The point that startups are 3 person teams without even enough capital to pay themselves is VERY valid. So too is the point that people need to be paid. Someone not getting paid in a startup is part of the team. An intern is there to learn and further paid to work; what I look to in internships if from whom the intern will be learning and if that’s lacking, one has to wonder how an intern can benefit.

    What I find here (In Austin, relatively speaking to my experiences on the coasts) though is that startups are unwilling, discouraged from, or unfamiliar with how to deal in equity (and more importantly – how to ensure that equity is valuable). Owners are neither interns nor employees unless they are too that. I own a piece of a business, that’s why I work on it; AND I am paid by a business, for my position in it.

    There is a real challenge for us to collectively consider when venture capital isn’t prolifically available, funding rounds are relatively smaller, and outcomes average a fraction in size compared to elsewhere, if exits occur at all: equity is both at once more precious and less valuable. Founders want to retain just a bit more, early investors hesitant to relinquish as much, early supporters seeking their ROI. Likewise, Angels press for a little more ownership to offset the relative rate of return.

    What then is available to build good teams?

    By no means an answer or a way forward for us. Just an observation of reality that relatively less capital, less valuable companies, causes the circumstances with which we need to work. Startups can’t succeed without teams, and young professionals will struggle to get the good experience they want/need, and can provide, if businesses can ill afford them. Let’s solve the challenge.

    Business capitalization, valuation, growth, and establishment is NOT remotely easy. We might be experiencing a lot of a cart before horse situation where we think we need more startups to find their way, to get more capital injected, to get interns and executives paid, to drive further outcomes. Maybe we’re going about it wrong and need to work the other way with more leadership and education to drive outcomes, get more executives and interns involved valuably, injecting more capital into the ecosystem, enabling us to fuel more startups.

  2. Pingback: Summer 2017's best paying internships - The American Genius

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Business News

So the Labor Department is cool with unpaid internships again

(BUSINESS NEWS) Regulations on unpaid internships continue to wax and wane, and businesses that opt to use unpaid labor should be aware of new regulations.

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Unpaid internships are a deacreasingly common institution in the United States, with help from former regulatory attempts to make them more difficult to create.

That regulatory oversight might become more relaxed after the Department of Labor (DOL) issued new rules under the Fair Labor Standards Act (FLSA) that governs the role of unpaid internships in the modern American workforce.

Last week, the United States’ labor governing body decided to revise its guidelines on unpaid internships using the concept of a “primary beneficiary test.”

The core principle behind the seven statements that comprise the primary beneficiary test revolves around the idea that the reason you are hiring unpaid interns is for work that provides the intern with the primary benefit (educational opportunities, hands on learning, and networking), not because the company isn’t paying someone else to perform the same activities.

So with these guidelines, there’d be no more call for jokes about interns fetching coffee or making copies. Sounds like a win for the intern, right?

Not exactly.

The guidelines stress, however, that there is no magic quota of yes or no answers that yields the unpaid intern in question has job duties that would require payment. That even includes answering “no” to the statement that reads: “the intern and the employer clearly understand that there is no expectation of compensation.”

Of course, if a company were in violation of these guidelines, especially the one regarding compensation, it would be easier for adjudication to be brought against the company into a court of law. These rules start as the groundwork for any legal action interns can bring against an organization.

The first set of six guidelines were developed in 2010. By 2011, a lawsuit brought by unpaid interns against Fox Searchlight while working Darren Aronofsky feature, Black Swan, claiming the interns were performing job duties in need of compensation (read: they weren’t already paying employees to do the same roles, rather using interns as free labor).

The ruling in 2013 was in favor of the interns, but a different federal court reversed that decision in 2015. It is interesting to note that the revised guidelines published by the DOL only a week ago were derived from the Court’s 2015 decision on this case.

The larger trend of lawsuits brought by unpaid interns may cause a company pause if they reverse decisions about payment of employees.

Despite the judicial onslaught, some organizations may still choose to pursue unpaid internships in light of the relaxation of the guidelines by the DOL.

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Business News

Starbucks’ Teavana chain finally settles lawsuit with Simon Property Group

(BUSINESS NEWS) A bitter battle over store closures concludes with private settlement – and Teavana stores are still closing.

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A months-long legal fight between Starbucks’ Teavana and Simon Property Group, the number one mall operator in the U.S., has come to an end with a private settlement that reportedly allows the tea chain to move forward with some of its store closures.

In July 2017, Starbucks unveiled plans to close all 379 retail locations of its floundering Teavana stores.

Shortly thereafter, Simon Property Group got a local judge to bar Starbucks from closing the 77 Teavana locations in its malls, a peculiar legal move for this situation. Starbucks would be breaking its lease agreement with Simon, and Simon wasn’t going to stand for it.

Simon Property Group cited the ongoing financial plights traditional malls have experienced for years as more and more retailers shut their doors as its primary reason for blocking Starbuck’s actions. The difference with Teavana is that Starbucks isn’t under great financial stress and can actually afford to keep the stores open, per court documents.

Starbucks disagreed, but in November, a judge sided with Simon and ordered Starbucks to keep its Teavana stores open and not break dozens of leases nationally. Starbucks fought back with a December appeal, but the case moved up to Indiana’s highest court, bypassing the intermediate Court of Appeals.

And now, before Starbucks’ appeal could be heard, the dueling companies have apparently reached an undisclosed settlement, according to New York Post reports. Exact settlement details have not been revealed, but the Post has found at least two Teavana locations that are closing in just a few days, indicating that settlement may play out in Starbucks’ favor.

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Business News

Zillow sued for concealing Zestimates on certain listings

(BUSINESS NEWS) Zillow being sued for Zestimates is nothing new, but they’re now being accused of concealing Zestimates on “Co-Conspirator Broker” listings, violating federal Antitrust laws.

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From our real estate section, The Real Daily:

The latest Zillow legal troubles again surround their Zestimates; this time they are being sued for their Zestimates violating federal Antitrust laws. The company has allegedly violated and continue to violate Section 1 of the Sherman Act, 15 U.S.C. § 1 and the New Jersey Antitrust Act, N.J.S.A. 56:9-3.

Plaintiff, EJ MGT LLC, based in New Jersey, filed suit again Zillow Group Inc. and Zillow Inc. today. In a 21-point legal brief outlining their specific violations, two things become immediately clear (assuming of course there is truth in these allegations): Zillow is giving preferential treatment to preferred brokerages (labeled ‘co-conspirator Broker[s] in the lawsuit) and Zestimates are wildly inaccurate (as many have adamantly stated since Zestimates’ conception).

The first few points of the brief explain exactly what Zillow is being accused of doing: “this antitrust action arises from Zillow’s conspiracy with certain real-estate brokerage companies to selectively conceal ‘Zestimates.’” Zillow’s estimate of a residential property’s “fair market value” which the lawsuit states they know “to be inaccurate,” have allowed “only select brokers to conceal the display of Zestimates on their listings to the exclusion of the general public.”

The lawsuit goes on to state that “these agreements between Zillow and certain co-conspirator brokers of residential real estate restrain trade (read: the agents/brokers being allowed to conceal unwanted Zestimates, henceforth referred to as ‘Co-conspirator Brokers’) and deprive Plaintiff and the public in general of the benefits of open and robust competition in two markets: the residential real estate market and the residential real estate brokerage market.”

In essence, Zillow and the Co-conspirators Brokers have made an illegal agreement regarding the display of Zestimates on Zillow’s site.

Zillow has long touted their Zestimates as a “user-friendly format to promote transparent real-estate markets and allow people to make informed decisions;” except Zestimates are often believed to be inaccurate and now they’re being concealed at the request of a select group of Co-conspirator Brokers – a far cry from making real estate more transparent.

If the lawsuit’s claims have any validity behind them, it seems as though Zillow may be in for a bumpy ride. Item 10 in the suit states, “Zillow has acknowledged that it conceals Zestimates as a result of agreements with only ‘certain brokers’ who receive ‘certain treatment’” and uses a message screenshotted from Zillow’s Help Center as proof these words were in fact used to explain why some listings had prominent Zestimates while others did not:

You may be wondering what brought about this lawsuit; it seems Plaintiff, EJ MGT LLC, owns and is marketing a property located in Cresskill, New Jersey, through an agent unaffiliated with Zillow (not a Co-Conspirator Broker). Therefore, their listing contains a prominently displayed Zestimate, while a similar listing in nearby Alpine, New Jersey, which is listed through a “Co-conspirator Broker,” conceals the Zestimate:

The above example is not the only one outlined in the case, however. Item 12 of the lawsuit states that further evidence can be seen by comparing a residence page for a property while it was listed with a Co-conspirator Broker versus the same residence page once the property was off the market. One clearly conceals the Zestimate, while the latter displays it clearly underneath the listing price.

For reference, the Co-conspirator Broker listing was screenshot on December 26, 2017 and the screenshot after it was taken off the market with the Zestimate was taken on January 2, 2018. Merely a week in between images, and yet the difference of how the ad is displayed is quite apparent:

In essence, Zillow has violated the very transparency they claimed to create.

Zillow is allegedly promoting misleading and inaccurate information while using their marketing power to charge brokers to hide this information which could negatively impact a sale, and which Zillow itself has acknowledged is sometimes inaccurate.

Also, general members of the public have no way to prevent Zillow from obtaining and posting information in this way, and it cannot be altered without hiring a Co-conspirator Broker, as Zillow has explicitly refused to offer the option to hide information to individual home owners, further deepening the dependency on Co-conspirator Brokers.

Because of their alleged refusal to treat everyone equally and “empower homebuyers with information,” they have potentially restrained trade in connection with the exchange of information regarding home valuation and offered anti-competitive benefits to only those brokers chosen to purchase that ‘special’ service package from Zillow that removes Zestimates from listings.

Therefore, brokers are not on even footing: when a seller attempts to price check; the brokers without it could be losing out to those who have the ‘special’ package and removal of Zestimates alongside listing prices.

So far, each individual Co-conspirator Broker has not been named; they have been named as a group: Sotheby’s International Realty, Inc., Coldwell Banker Real Estate LLC, Century 21 Real Estate LLC, The Corcoran Group ERA, and Weichert Realty, according to court documents. It is unlikely that any action would ever impact the brokerages, rather Zillow Group itself.

Zillow is being sued for five counts: two counts of conspiracy to restrain trade, one count of violating the New Jersey Consumer Fraud Act, one count of slander of title/product disparagement, and one count of interference with prospective economic advantage. A jury trial has been requested.

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