Over the last few years there has been a steady increase in the number of usually young people entering the workforce by undertaking an ‘internship’ or ‘work experience’ with an employer in their industry of choice. These are generally unpaid, and involve the intern performing a number of tasks or roles within an organisation with the intention that they get experience in their chosen field to add to their curriculum vitae. Such arrangements have been a feature of the labour market in the United States for many years, and are now becoming more common in Australia.
Many employers are not aware that the engagement of unpaid interns can expose them to claims of underpayment, breach of the Fair Work Act 2009 (the Act) or a modern award, and can result in prosecution by the Fair Work Ombudsman (FWO) and the imposition of penalties.
The increasing prevalence of these unpaid work experience arrangements led to the FWO investigating and releasing a report earlier this year. All employers should be aware of their rights and responsibilities before taking anyone in an unpaid role.
The basic position is that if a person is not undertaking a vocational placement; then they are either:
(a) a volunteer, and are not entitled or required to be paid; or
(b) an employee, and must be paid for the time that they work.
Unpaid trials and internships
Many employers already understand that the engagement of an employee on an unpaid ‘trial period’ is unlawful. All employees are entitled to be paid the minimum rate of pay set out in the applicable modern award, or the federal minimum wage, for all hours worked.
Internships are often no different from unpaid trial periods. The use of the term ‘intern’ appears to be more often used in professional or semi-professional environment. However, the arrangement is often substantially the same – the person agrees to work unpaid for a specified period in order to gain experience, and often with the expectation or hope that it will lead to paid employment.
What about vocational placements?
The Act does recognise some forms of unpaid work. In particular the Act excludes from the definition of an ‘employee’ a person on a vocational placement.
A ‘vocational placement’ is defined in the Act in the following way:
“vocational placement means a placement that is:
(a) undertaken with an employer for which a person is not entitled to be paid any remuneration; and
(b) undertaken as a requirement of an education or training course; and
(c) authorised under a law or an administrative arrangement of the Commonwealth, a State or a Territory.”
The most relevant part of that definition is at (b). The placement must be undertaken as a requirement of an education or training course. A person simply seeking work experience in a particular industry will not be undertaking a ‘vocational placement’. The vocational placement must be a course requirement to fall within the definition in the Act.
Are volunteers treated differently?
The Act does not include a definition of a ‘volunteer’. The Act only applies to employees, which would exclude someone acting as a volunteer.
It is important, however, to understand what distinguishes a volunteer from an employee.
While there are no hard and fast definitions, the essential difference is that a volunteer undertakes the duties willingly and for their own benefit. An employee undertakes their duties for the benefit of their employer – that is they are engaged in work which is productive for their employer.
The distinction is often blurred, particularly in the not-for-profit sector, where many organisations would not function without the work undertaken by volunteers. However a volunteer is not bound to perform their duties.
How do you tell if someone is really an employee?
The fundamental question to be asked is whether the parties intend to create a legally binding employment relationship?
The answer to this will depend on a number of factors, including the answers to the questions set out below.
What is the purpose of the arrangement?
Is the purpose of the arrangement to provide work experience to the person, or for the person to perform a role ordinarily performed by a paid employee?
Arrangements in which the intention is to benefit the person are less likely to involve employment relationships.
What are the obligations of the person in the workplace?
Although the person may perform some productive activities during a placement, they are less likely to be considered an employee if there is no expectation or requirement of productivity in the workplace.
Who is the arrangement designed to benefit?
If the employer gains a significant benefit from the work performed by the person, this is more likely to indicate that an employment relationship has been formed.
How long is the placement for?
Generally, the longer a person is performing duties in a business, the more likely the person is an employee.
Can I engage an intern not on a vocational placement?
While employers should be wary of engaging anyone as an intern where they are performing the same duties as their employees, it is possible to provide work experience to those who ask, without them being employees.
The FWO has indicated that in its view:
“Unpaid work experience placements or internships are less likely to involve employment if:
- they are mainly for the benefit of the person
- the periods of the placements are relatively short
- the person is not required or expected to do productive work
- there is no significant commercial gain or value for the business derived out of the work
Unpaid work experience programs are less likely to involve employment if they are primarily observational.”
Seek advice before agreeing to an internship or unpaid work experience position
As the matters set out above make clear, determining when an internship or work experience position will give rise to an employment relationship is not clear cut. It will always depend on the particular circumstances that surround the possible engagement.
If you are planning on engaging an intern or accepting a person to do work experience in your business, it is important to seek professional advice before exposing your business to the risks of underpayment claims, or prosecution for breaches of the Act or a modern award.
If you have been approached by people seeking work experience, and asking if they can ‘work for free’, or become an intern at your business, it’s a good idea to have suitable arrangements in place to ensure that you don’t expose your business to later claims or prosecution.
The penalties for breach of the Act or an applicable modern award are up to up to $10,200 for an individual and $51,000 per breach for a body corporate.
Making sure that both parties agree in writing the basis of the engagement, and each other’s expectations, will help you to avoid trouble down to the track.
More information
For more information, please contact a member of our Employment and Workplace Relations team on (03) 8600 8888.
Note: This update is a guide only and is not intended to constitute legal advice.