A recent decision1 by the Federal Circuit Court of Australia has provided a timely reminder of the risks of engaging unpaid interns.

Background

Two interns were engaged by Crocmedia Pty Ltd, a radio media company, for a period of six months and twelve months respectively, after they approached the company seeking work experience while completing their university courses.

The workers were categorised by Crocmedia as “volunteers”, and one worker was also characterised as a “contractor” on occasion. While the workers were reimbursed between $75 and $120 per shift for expenses, these payments were below the national minimum wage.

The matter came to the attention of the Fair Work Ombudsman, whose office investigated and ultimately prosecuted Crocmedia for breaches of the Fair Work Act 2009 (Cth) (FW Act), on the basis that the two workers were employees. The alleged breaches related to the underpayment of wages, to the frequency of the payments which were made, and to the failure to provide payslips.

Crocmedia ultimately admitted the conduct and the breaches, and the matter came before Judge Riethmuller to determine the appropriate penalty.

Decision

Judge Riethmuller noted that, while the FW Act excludes “vocational placements” from key provisions relating to terms and conditions, the Crocmedia internship was not a vocational placement.

His Honour found that Crocmedia did not engage in a deliberate strategy to exploit the employees. However, it was content to receive the benefits flowing from the arrangement, which was itself “exploitative”.

While noting that profiting from volunteers is unacceptable conduct, Judge Riethmuller found that, importantly, Crocmedia rectified the underpayment in a timely fashion and had cooperated with the Fair Work Ombudsman. It had also not argued with the proposition that, as the payments which were made to the employees during their internship were “expenses”, they could not be set-off against the unpaid wages owing. Accordingly, Crocmedia had paid the employees the minimum wage required in addition to the “expense” payments it had already made.

As such, the Court imposed a penalty of $24,000. However, his Honour emphasised that penalties for such offences were likely to significantly increase in the future, because increasing media coverage of this issue will make it difficult for employers to allege that they made a genuine mistake when categorising employees.

Lessons for employers

The issue of unpaid interns and potential exploitation has received increasing media coverage over the past few years, particularly in the wake of the 2013 “Experience or Exploitation?” 2  report prepared for the Fair Work Ombudsman, which found numerous examples of unpaid internships across many industries, most particularly the media sector.

The report found that there was “reason to suspect” that a growing number of businesses, particularly in professional industries which are attractive to job-seekers, or which are oversupplied with graduates, were engaging interns to perform work on  an unpaid basis that would normally be undertaken by a paid employee.

The report found that an employment relationship (as opposed to a volunteer arrangement) may have formed where businesses engaging interns obtained significant benefit from doing so, rather than the main benefit of the arrangement flowing to the interns themselves.

The report also identified a number of additional factors – which were also referred to in the Crocmedia decision – that can be used to differentiate between unpaid work experience and unpaid employment, including:

  • the length of the internship;
  • whether the work that the individual does is productive; and
  • whether the company derives either profit or commercial gain from the work.

​Companies must be conscious that all interns who engage in work that creates an employment relationship are entitled to a minimum wage, the benefit of the National Employment Standards under the FW Act (eg leave or casual loading), and any entitlements owing under an applicable award or enterprise agreement.

However, it is important to note that in some circumstances, unpaid internship and like arrangements can be lawful. The FW Act allows for “vocational placements”, which can be mutually beneficial to both the student or intern and the business. These circumstances are limited though, for example, the work must be undertaken as a requirement of an authorised education or training course.

Employers should carefully assess any unpaid internships against the vocational placement criteria, and when in doubt seek advice. Otherwise, “cheap labour” can quickly turn into an extremely expensive affair.