Be clear about the arrangement to avoid legal consequences.
When that bright-eyed, eager student shows up on your doorstep offering their time and skills for free in exchange for the experience of working with you – it sounds like a win win situation. However, are unpaid internships too good to be true?
Internship and unpaid work placement arrangements provide mutual benefits for both students and businesses. Indeed, some of the most famous and successful entrepreneurs and professionals on the world stage have begun their work lives as an unpaid intern. The two biggest names in IT – Steve Jobbs and Bill Gates both interned as teenagers, with Jobbs being just 12 years old when he contacted Hewlett Packard for an unpaid work placement.
Unfortunately their success stories do not make up the majority of the work placement experiences for interns and businesses. A recent paper by the University of Melbourne revealed that the percentage of Australian students undertaking work placement internships is sharply increasing. As no clear and determinative definition of “intern” exists in the relevant workplace laws, much confusion exists surrounding the status, rights and obligations attached to internships.
In the majority of cases, courts are likely to find that the relationship between an intern and a company lacks the intention to enter legal relations necessary to be classified as an employment relationship. However, as the recent case of Fair Work Ombudsman v Crocmedia highlights, where arrangements display all of the relevant features of an employment arrangement, an employment relationship will be found to exist.
In this case, the Fair Work Ombudsman successfully prosecuted media company ‘Crocmedia’, for failing to pay two journalism “interns”. The two interns, one a university student and the other a recent graduate, had clocked up more than 18 months of unpaid work with the company. The Federal Circuit Court, ordered that the media company pay $24,000.00 in penalties in addition to the $22,169.00 of minimum entitlements that they had already agreed to pay. The judge stated that the penalties in this case and the increasing public exposure to the question of – at which point the internship becomes an employment relationship – “will result in the (employer) not being in the position of being able to claim that a genuine error of characterisation was made”.
More recently, in June 2016, the Federal Circuit Court imposed a whopping $272,850.00 penalty against another media company to send it a “serious message” not to disguise employment relationships as unpaid internships.
What does this mean for the Australian Employer?
When that bright-eyed, eager student shows up on your doorstep offering their time and skills in exchange for the experience of working with you, must you turn them away to avoid costly consequences? No, internships remain a crucial element of the modern workforce for both employees and employers.
An unpaid work experience arrangement or unpaid internship can be lawful if it is a vocational placement (a formal work experience arrangement that is part of an education or training course) OR if there is no employment relationship found to exist. In particular:
- the person must not be doing “productive” work
- the main benefit of the arrangement should be to the person doing the placement, and
- it must be clear that the person is receiving a meaningful learning experience, training or skill development.
In order to assess the above criteria, employers should consider the following in determining if their intern is actually an employee:
Reasons Internship was entered into
Was it to provide educational experience or enhance business and productivity?
Period of Internship
The longer the period of placement, the more likely the person will be deemed to be an employee.
The person’s importance to the business and obligations in the workplace
High expectations of productivity in the workplace may imply a legally binding employment relationship.
Who benefits from the arrangement?
In legitimate internships, students should gain the substantial benefit from the arrangement. Where significant benefit to the business is achieved through engaging the student, an employment relationship may be found.
Is the internship part of a University or Training Course?
There is less potential to argue a position of employment where the unpaid arrangement is part of a course requirement for university or a vocational training organisation.
The employment status of interns is determined on a case-by-case basis and if you are in any doubt about your current employment arrangements with an intern, it is always best to get legal advice to ensure that you are not liable for back payment of employee entitlements or other legal obligations.
If you are unsure about a current internship agreement, you can contact the experienced Employment Law team at Baker Love Lawyers.