Mix high unemployment amongst recent graduates with a desire to gain experience and contacts by working for free, and a seemingly ideal opportunity for employers is created. However, employers expose themselves to claims and liability if they are seduced by the "free work" temptation to offer an unpaid internship without understanding what it entails.
This situation has gained considerable attention in the United States in recent years, spawning many individual lawsuits and several significant class actions. In the last year alone, high profile class actions include one for $50 million dollars against Elite Model Management and another one involving 40 unpaid interns at a law firm alleged to be an "intern mill".
The issue has also garnered a clamour of media and political attention in Canada in the last few years. Most recently, media reports suggest that one of the country's largest employers is offering an illegal internship program and taking advantage of young unemployed people eager to gain any foothold into employment. A complaint has been filed with Human Resources and Skills Development Canada for unpaid wages.
In light of the experience in the United States, the time seems ripe for a class action to materialize in Canada, particularly against employers who regularly use unpaid interns. The financial stakes can be very high.
What are the laws in Canada regarding unpaid internships? Provincial and federal employment legislation set out the rules and regulations for employees. However, there is no clarity on what is meant by an "intern". Employers need to refer to applicable employment standards legislation to ensure that their "intern" does not fall into the definition of an "employee" performing work in return for wages.
British Columbia's Interpretation Guidelines Manual notes that an "internship" is on-the-job training offered by an employer to provide a person with practical experience, as opposed to "work" which refers to the labour or services performed by an employee in return for wages.
The Ontario Ministry of Labour provides a fact sheet, "Are Unpaid Internships Legal in Ontario", addressed to those working as an "intern". Based on the fact sheet, an intern that does not meet all the following stringent conditions is an "employee":
- Is the training similar to that received in a vocational school? Training would include instruction, supervision, and evaluation, and entail skills-training specific to a particular field or industry.
- Is the training for the benefit of the intern? The internship must be focused on the training of the intern, and the employer is to receive little if any benefit from the training. If the employer receives the benefit of the intern's work, then the intern must be paid as he or she has provided a service.
- Does the training replace the work of another employee? The intern must not be given work that a paid employee would ordinarily do.
- Has the intern been promised a job at the end of the training? The intern may be advised of the legitimate possibility of a job at the end of the training, but may not be promised a job once the internship is completed. If the latter, the intern would be considered an employee.
- Have you made it clear that the internship is unpaid? Interns must be advised in advance that the internship is unpaid.
In Québec, a regulation under the employment legislation refers to unpaid interns as "stagiaires" or trainees. Employees who are trainees are not subject to the application of the employment standards legislation if they are under a program of vocational training recognized by law, the nature and duration of which is also determined by that law.
There is no other mention of interns in Canadian law. Most of the other provinces define "work" and "employee" broadly, but generally link either employee or work with an agreement for the payment of wages. Newfoundland's legislation does not define work, and simply defines "employee" as a natural person who works under a contract of service to an employer, which seems to imply that all interns must be paid at least a minimum wage.
In light of the confused state of the law across Canada, any employer considering taking up a person's offer to "work for free" must beware. Offering an unpaid internship to a person who ought legally be characterized as an "employee" may subject the employer to significant and unexpected liability for unpaid wages, vacation and holiday pay, overtime, and possibly termination pay if the employer ended the internship. There may also be issues related to workers' compensation insurance and vicarious liability for the actions of the intern/employee. If the mischaracterization relates to a large number of interns in a flawed internship program, the employer faces potentially ruinous liability in a class action proceeding.
Any employer considering offering unpaid internships should be fully familiar with the applicable employment standards, and consider having detailed documentation about the internship and the training benefit available for the intern. To minimize the risk of claims and complaints, and potential liability, employers should consult an experienced lawyer who can assist in the implementation of the internship program.
Co-authored by Kristen Pennington, student at law.