The Federal Circuit Court recently imposed a fine of $24,000 against a media company which failed to pay wages to two interns who performed work for periods of six months and 12 months respectively.

Background

The company involved, Crocmedia Pty Ltd (Crocmedia), is a medium-sized business operating in the sports and media entertainment sector in Victoria.

The two workers involved sought and obtained work experience placements with Crocmedia for a period of approximately three weeks.

After the work experience placements ended, the workers continued to perform work for Crocmedia on a casual basis. Although the workers were not paid any wages for work performed following the work experience placements, they did receive payments in respect of ‘expenses’ ranging between $75 and $120 per shift.

The Fair Work Ombudsman (FWO) investigated Crocmedia’s conduct, with Crocmedia cooperating fully with the investigation. Upon finalisation of the investigation, Crocmedia promptly attended to backpay of a total amount of $22,168.08 found by the FWO to be owing to the workers.

As the payments previously made to the workers were characterised as a reimbursement of ‘expenses’, the payments were not capable of being set-off against the wages subsequently found to be owing to the workers. The net result was that the workers were ultimately paid more than they would have been paid if they had simply received the minimum Award payment.

Notwithstanding that the workers ultimately ended up financially better-off and notwithstanding Crocmedia’s cooperation with the FWO’s investigation, the FWO commenced proceedings against Crocmedia alleging the following breaches of theFair Work Act 2009 (Cth) (FW Act):

  • Failure to pay an amount at least equal to the federal minimum wage;
  • Failure to pay a casual loading;
  • Failure to pay wages in full at least monthly; and
  • Failure to provide pay slips.
  • The FWO sought the imposition of penalties in respect of the various breaches of the FW Act.

The Court’s findings

The Court noted that ss 30C and 30M of the FW Act provide an important exception to the general rules regarding minimum terms and conditions of employment where a worker is undertaking a ‘vocational placement’, which is defined as a placement that is:

  • Undertaken with an employer for which a person is not entitled to be paid any remuneration; and
  • Undertaken as a requirement of an education or training course; and
  • Authorised under a law or an administrative arrangement of the Commonwealth, a State or a Territory.1

Whilst many work experience placements and internships will meet the statutory definition of a ‘vocational placement’, the FWO had warned that the vocational placement exception is not clearly defined and regarded the following factors as being relevant in determining whether the vocational placement exception applies:

  • The length of the placement (the longer the placement, the more likely the worker is an employee);
  • The productivity expectations during the placement (the more that increased productivity is expected, the more likely the worker is an employee); and
  • The commercial gain to the business (the greater the commercial gain, the more likely the worker is an employee).
  • The Court held that Crocmedia had breached the FW Act and observed that the arrangement ‘…when viewed objectively, was exploitative’.2

The Court further held that it was not appropriate to impose the maximum total penalty of $115,500 in circumstances where Crocmedia cooperated fully with the FWO investigation, made early admissions, and rectified the underpayments. In the particular circumstances of this case, the Court held it was appropriate to impose a total penalty of $24,000.

Lessons for employers / businesses

The case should not be considered as authority for the proposition that all interns and work experience students are entitled to payment of at least the federal minimum wage.

Unpaid internships and work experience placements remain lawful and are a commendable arrangement so long as businesses correctly characterise the arrangement and ensure that the main benefit of the placement flows to the worker and not to the business. Generally speaking, if a business is likely to derive any significant commercial benefit from the arrangement, the worker should be treated as an employee.

While the fine imposed in this case was at the lower end of the scale, the Court specifically warned that ‘the penalties [for breaches of this nature] are likely to increase significantly over time as public exposure of the issues in the press will result in respondents not being in the position of being able to claim that a genuine error of categorisation was made’.3

This case also highlights that businesses will not be able to secure a credit for or set off of poorly categorised payments which cannot subsequently be attributed as payment in respect of wages or employee entitlements.

Although this case did not deal with the issue, it is a matter for additional comment that where there is a finding of unpaid wages and entitlements, there will also be issues of:

  • Underpaid or unpaid superannuation;
  • Underpaid group and payroll tax; and
  • Underpaid workers compensation or insurance premiums (where determined by numbers of workers and payroll size).

The legislation imposing the obligation on businesses to pay these additional taxes and levies also provide similar prosecutory powers to the respective regulators and provide for penalties in addition to the obligation to make good any payment shortfalls.