A recent Federal Circuit Court decision is a timely reminder that Australian law does not recognise unpaid internships.
The Federal Circuit Court has issued a warning to companies that take on unpaid interns in the first prosecution by the Fair Work Ombudsman relating to unpaid work since the release of the Experience or Exploitation? report1 which it commissioned in 2013.
The case of Fair Work Ombudsman v Crocmedia Pty Ltd  FCCA 140 involved two university students who contacted Crocmedia seeking experience in the media industry and were offered 3 weeks of unpaid work experience. After this 3 week period, the students were taken on as ‘volunteers’ and received small payments referred to as expense reimbursements. The work undertaken by the students included sourcing interviews, preparing audio and delivering an on-air sports program. Despite Crocmedia’s classification of the students as ‘volunteers’, the Court held that the nature of the work, the provision of equipment and the level of control exercised over the students meant that they were in fact employees. The respondent was found to have breached multiple provisions of the Fair Work Act, including failure to pay minimum wages.
Crocmedia’s conduct was described by the Court as ‘at best, dishonourable’ and ‘at worst, exploitative’. The Court warned that profiting from ‘volunteers’ is unlawful conduct in Australia and Crocmedia was ordered to pay AUD24,000 in penalties which included a discount of 30% due to its early and full rectification of the underpayments.
A warning to employers
The Court acknowledged that arrangements for work experience interns are a ‘difficult topic’ within employment systems and exploitative arrangements are increasingly prevalent. This is particularly the case when interns do unpaid work in a way that is undistinguishable from the work done by a paid employee.
Judge Reithmuller expressed concern that the popular appeal of certain industries and students’ desire to gain a competitive advantage in the industry has led businesses to take advantage of aspiring youth.
Relevantly for employers, the Court warned that penalties for this conduct will increase significantly over time, as public exposure will prevent employers from claiming ignorance of their obligations.
Implications for vocational placements
It remains to be seen how this decision and the continuing focus on unpaid work sits with the Universities Australia Work Integrated Learning (WIL) strategy launched this month in partnership with the Australian Chamber of Commerce and Industry, the Australian Industry Group, the Business Council of Australia and the Australian Collaborative Education Network. The WIL strategy seeks to lift the employability of university graduates while promoting innovation and competitiveness of business.
Presumably, these work experience positions would be ‘vocational placements’ which can be unpaid under the Fair Work Act provided certain criteria are met. For unpaid work experience to be a ‘vocational placement’, it must be undertaken as a formal requirement of a vocational course or training program for which the student receives course credits and the institution delivering the course or program must be authorised under law to do so (such as a university, TAFE college or school).
However the scope of this exception is unclear. In the Crocmedia decision, the Court cited a range of factors that may be relevant in determining what is and isn’t a ‘vocational placement’ including:
- the length of placement;
- any expectation that the intern deliver productive work outputs;
- the commercial gain to the business; and
- the benefits flowing to the intern.
Implications for employers
The decision in Crocmedia reflects the increased scrutiny of internship programs by regulators in Australia, and the importance of correctly classifying employment relationships in order to avoid significant costs or penalties. Employers should ensure they have adequate procedures in place to review intern or work experience placements, and should be wary of agreeing to arrangements whereby students perform unpaid work.
The decision in Crocmedia forms part of a broader global trend of increased scrutiny on employers that engage unpaid interns. Recent class actions in the US have been brought against employers of interns, including Condé Nast, FOX Searchlight and NBC Universal. These claims received widespread publicity and some resulted in significant financial settlements. In the both the UK and Canada there has been recent parliamentary debate on legislation which proposes increased restrictions on unpaid interns2 .