Background Internships are common in the Life Sciences and Technology sectors. Start-up businesses in particular have long relied on unpaid interns as a way to help them to get off the ground until funding is received. However, increased legal scrutiny of internships has culminated in recent UK government guidance requiring increased formalisation of internship arrangements. There is now limited scope for UK employers to provide unpaid or informal work experience.
In a Nutshell...
- It's now clear that most interns will qualify for National Minimum Wage at £6.08 per hour as well as other worker rights.
- UK government threatens minimum wage enforcement action targeting internships.
- Government guidance requires formalised recruitment of interns and internship access for broader social groups, including non-graduates.
- Employers should also ensure confidentiality and intellectual property protections are in place for interns.
Why the Controversy About Interns?
Internships sharply divide opinion: are they a no-strings gift of insight, experience and opportunity or the cynical exploitation of desperate career-starters? The difference in views runs largely along the fault-line between existing practices. Many businesses offer interns an informal and contained period of valuable experience to differentiate them in the scramble onto the career ladder or to get in at ground-level in a start-up business. However, in other sectors, internships have become a mandatory, unpaid and prolonged waiting room to entry. Aside from perceived exploitation of interns, the stated view of the UK government is that internships – particularly the informal variety - favour the socially-advantaged and well-connected. This point is highly arguable but in any event, new government policy treats almost all intern arrangements the same. All businesses offering internships will be forced to formalise their intern processes and relationships and, critically, will incur increased costs.
Which Interns Must be Paid?
If there is an obligation for the intern to attend work and perform tasks then the intern must be paid, since they will qualify as a “Worker” under the National Minimum Wage Act 1998. In a commercial venture (as opposed to a charity or similar organisation), the only interns who will not be entitled to payment will be those who are “volunteers”, who are not obliged to perform any services. In practical terms, this means that only internships that solely involve observation or work shadowing may be legitimately unpaid. Even these must be paid if they may lead to an offer of permanent or paid work. Given that compliant arrangements for non-payment would mean that the business derives little practical benefit from the relationship, it will be hard to satisfy a court that this was the real intention. Employers seeking to rely on the exemption should record the (non-contractual) nature of the relationship in writing. This is not a theoretical issue. The UK government recently has threatened targeted minimum wage enforcement action in respect of interns. In addition, trade unions are bringing test cases, which have confirmed the obligation to pay.
A special dispensation means that students undertaking placements of up to one year on a “sandwich” course are exempt from the minimum wage obligations but the other issues mentioned here still apply.
What Other Rights Do Interns Have?
Interns who qualify as workers according to the criteria summarised above will also be entitled to other worker rights including paid holiday and protection from discrimination, deductions from pay and whistleblower retaliation. Interns providing agreed services under the control and direction of a business legally may be employees, with the full raft of associated rights.
Recruitment of Interns
The guidance requires that interns are recruited in broadly the same way as regular employees involving open advertisement and selection criteria. Offering internships only to graduates and informal recruitment methods are both specifically discouraged and may pose a risk of discrimination claims.
Interns and Proprietary Rights
The fact that interns share many of the same rights as employees does not mean that they also have the same obligations. In particular, businesses will not be protected by the implied employee duties of confidentiality, good faith and fidelity or automatic ownership of intellectual property. These issues should be addressed in a written contract, although this will preclude any argument that the intern should be unpaid.
What Does All This Mean for Business and for Interns?
The concern is that many small and medium-sized businesses quite reasonably may conclude that these obligations outweigh the fragile benefit that they receive from continuing intern programmes. If interns must be formally recruited and paid, employers may consider that they would be better off offering a fixed-term contract to one of the many experienced candidates in the growing pool of recently unemployed. For those who continue to offer internships, rather than improving access, will raising the legal stakes mean that employers are less willing to take a chance on a candidate who might not satisfy formal criteria?
We might also wonder how Technology and Bio-tech start-up businesses will fill the gap left by unpaid interns. Or will this be a further obstacle to the creation of new jobs through entrepreneurial activity in a sector already challenged by diminished funding options? Only time will tell whether the goal of social mobility is achieved by these measures or whether they will be largely theoretical rights associated with internships that no longer exist outside a handful of large employers.