Unpaid work arrangements (often called "internships" or "work experience") have received some attention in recent years. In 2013, Professors Andrew Stewart and Rosemary Owens from the Adelaide University Law School released a report regarding the significant numbers of workers being asked to undertake "unpaid trials", and businesses increasingly using unpaid interns to perform work normally reserved for paid employees. Following on from this report, the Fair Work Ombudsman's (FWO) recent successful prosecution of an organisation for failing to pay minimum wages to two interns will no doubt leave many organisations querying whether their internship programs comply with industrial laws.

The FWO prosecuted a media organisation over its dealings with two university students. Following the students' enquiries, the organization agreed to provide them with three weeks' unpaid work experience, during which time they worked as producers on radio programs broadcast on a network and performed duties which included preparing and delivering on-air content and sourcing and arranging interviews. The students were not provided pay slips or paid minimum, regular wages and casual loadings but were reimbursed for their expenses. After three weeks, the interns were employed on a casual basis, but depending on the specific task were also characterized as "volunteers" and/or "contractors".

Following the FWO's investigation, the media organisation quickly admitted that it had failed to pay the employees their minimum wages and rectified the full wages due and owing (AUD 22,168.08). The organisation also accepted that the payments it did make (characterized as "expenses" and equivalent to around 80 percent of their minimum wages), could not be offset against wages due and owing, enabling the employees to retain their "expenses" payments (AUD 17,720).

Despite the organization's early admissions, full cooperation with the FWO's investigation and early and full rectification of the underpayments, the FWO submitted that legal proceedings to obtain orders for penalties were necessary because of the strong public interest in deterring organizations from engaging in unlawful unpaid work arrangements. The Federal Circuit Court determined, (as was agreed by the parties), that the organisation had breached the Fair Work Act 2009 (Cth) (Act) by failing to pay the interns their minimum wages and casual loadings, failing to pay their wages in full at least monthly and failing to provide pay slips.

Despite the organization's plea that it had not "knowingly" defied the law, the Court penalized the organization AUD 24,000 stating that its arrangements could not "on any view, be categorised as ongoing work experience or an internship". In the Court's view, the organisation had engaged in an "at best, dishonourable" and "at worst, exploitative" arrangement that it believed avoided the consequences of the minimum wages requirements of the Act.

This decision serves as a strong warning to think twice before entering into unpaid work arrangements and to re-consider those already in place to ensure that such arrangements are not in fact employment relationships posing as unpaid work experience or like arrangements.

For organisations left pondering, we note that unpaid work arrangements can be lawful - provided that the arrangement is a "vocational placement" within the meaning of the Act or alternatively no employment relationship can be said to exist. Under the Act, a vocational placement is lawfully unpaid if:

  • there is a placement either arranged by an educational or training institution or a student;
  • there is no entitlement under contract, industrial award or agreement for the organisation to pay for the work the student undertakes;
  • the placement is done as a requirement of the student's education or training course; and
  • the placement is approved under a Commonwealth, State or Territory law or administrative arrangement. (Courses offered at universities, TAFE colleges and schools will satisfy this requirement.)

If the placement does not meet all of the above criteria, it may still be a lawful unpaid work arrangement provided no employment relationship exists. The Adelaide Law School report suggests that unpaid work arrangements are less likely to be considered employment relationships if:

  • they are mainly for the benefit of the person;
  • the periods of the placement are relatively short;
  • the person is not required or expected to do productive work; and
  • there is no significant commercial gain or value for the organization derived out of the person's work.

In the words of the Fair Work Ombudsman, Natalie James, "when a worker moves beyond merely learning and observing and starts assisting with business outputs and productivity, workplace laws dictate that the worker must be paid minimum employee entitlements".

See Fair Work Ombudsman v Crocmedia Pty Ltd [2015] FCCA 140 (29 January 2015), and "The Nature, Prevalence and Regulation of Unpaid Work Experience, Internships and Trial Periods in Australia, Experience or Exploitation?", Report for the Fair Work Ombudsman, January 2013, Andrew Stewart and Rosemary Owens, Adelaide Law School.