Is your intern working illegally?

In recent years, there has been a dramatic increase in the presence of interns in Australian workplaces. For many young people, a paid or unpaid internship provides invaluable experience and a gateway into their chosen career. However, employers need to be aware of their obligations when they're considering using unpaid interns, in order to prevent exposure to significant back pay claims and potential penalties.

The Australian position on interns

According to the submissions of Unions NSW to the 2014 inquiry into unpaid work, many unpaid work experience placements lead to the exploitation and underpayment or non-payment of workers. This is of particular concern in relation to vulnerable young people or migrants who undertake unpaid work to gain a pathway into their industry of choice.

Given the ambiguity in the definition of the term ‘intern’, and a lack of reliable evidence for the type and existence of internships, it is perhaps unsurprising that the legal position regarding interns is also unclear. The Fair Work Act 2009 does not expressly refer to interns. Under the Act, it is a question of whether the intern is an employee working under a contract of employment, or falls within an exception created by the Act. An intern who is an employee will have entitlements under the Act and industrial instruments, including modern awards and enterprise agreements. These entitlements include a minimum wage.

Therefore, the key issue for determination is whether an employment contract exists between the intern and the employer, and therefore whether the intern is an employee.

Unpaid intern vs employee

There is no statutory definition of ‘employee’. Accordingly, an intern’s status must be determined by common law.

Under common law, a worker will be regarded as an employee if they satisfy the multi-factor test the courts have developed. No one factor determines the existence of an employment relationship. However, courts place significant weight on the right of the employer to control the manner in which an employee performs their work. Other factors include access to leave entitlements, payment of superannuation, deduction of income tax, provision of equipment and exclusivity of performance.

Three factors are particularly relevant to the question of whether an unpaid intern is an employee under common law:

  1. The existence of an obligation to perform work is indicative that a worker is an employee.
  2. The fact that an employer receives a productive benefit suggests that the intern is an employee. In a 1994 case, a person undertaking work experience was held not to be an employee because no productive benefit or consideration flowed to the employer. The Court found that the mere possibility the employer might acquire a new employee was not a relevant consideration.
  3. The longer the duration of the internship, the more likely a Court will regard an employment relationship as having come into existence.

It is worth noting that some workers are deemed to be employees under state industrial laws and under the Act, for example, if they are outworkers in the textile, clothing and footwear industry.

The vocational placement exception

Regardless of whether an employment relationship exists, if an internship meets the definition of ‘vocational placement’, the intern will be excluded from the definition of ‘employee’ for the purposes of the Act. The effect of this exclusion is that the national minimum wage, National Employment Standards, the terms and conditions of modern awards, and the other minimum entitlements in the Act do not apply to workers on a vocational placement.

If the internship does not satisfy the statutory definition of a vocational placement and a court decides that the worker is an employee, the minimum standards in the Act will generally apply.

Section 12 of the Act defines vocational placement as a placement where the person is not entitled to be paid any remuneration, the placement is undertaken as a requirement of an education or training course, and it is authorised under a law or administrative arrangement of the Commonwealth, a state or a territory.

This definition of vocational placement is ambiguous for several reasons. Firstly, the term ‘remuneration’ is not defined and is likely to have a broader meaning than ‘wages’. Secondly, the term ‘course’ is also ambiguous as it may refer to a complete program or a component of a program, such as a unit of study. Thirdly, it is not clear what the term ‘placement’ means, yet it appears to exclude work experience undertaken by a student on their own initiative.

Government-sponsored employment programs

The recently-announced Federal Budget 2016–2017 includes a proposal to implement the Youth Jobs Path, which is designed to improve the job participation rates and employability of job-seekers under 25 years of age. Under the program, which is expected to be implemented by April 2017, job-seekers will participate in a 12-week work placement for which they will receive $200 a week in addition to their other Centrelink entitlements. Labour MPs have expressed in-principle support for the initiative, so it will probably go ahead no matter which party wins the next Federal Election.

It is likely the government will seek to exclude Youth Jobs Path interns from the meaning of an 'employee' for the purposes of the Act by express legislative provision to ensure that employers are not liable for wage and entitlement contraventions by participating in the program. 'Work for the dole' workers are excluded from the definition of an employee in a similar way. Employers who seek to take advantage of such government-sponsored employment programs should take care to ensure their internships fall squarely within the relevant exemption.

Recent legal cases

A Federal Circuit Court case from 2015 sent a strong message to employers that the underpayment of interns will not be accepted. The decision resulted in the first prosecution of an Australian company for failing to pay their interns the minimum wage. It was against this background that the company was ordered to pay the following penalties:

  1. $12,000 for failing to pay minimum wages.
  2. $9000 for failing to pay casual loadings.
  3. $2000 for failing to pay wages in full.
  4. $1000 for failing to provide payslips.

Legal lessons for employers

The following lessons can be learnt from examination of significant cases that have been before the courts:

  • Careful attention should be given to any unpaid work experience to ensure it is a legitimate opportunity that falls within the Act’s definition of ‘vocational placement’.
  • Merely classifying individuals as trainees or interns does not necessarily negate the employer’s obligation to pay minimum wages and treat employees in accordance with the Act and relevant industrial instruments.
  • In determining whether an intern is an employee, consideration needs to be given to whether this is their status under common law and whether the requirements of section 12 of the Act are met.
  • An employer who incorrectly classifies an intern as a non-employee is liable to back pay the intern and pay a range of civil penalties.

Information provided in this article is general only and it does not constitute legal advice and should not be relied upon as such. SEEK provides no warranty as to its accuracy, reliability or completeness. Before taking any course of action related to this article you should make your own inquiries and seek independent advice (including the appropriate legal advice) on whether it is suitable for your circumstances.