Unpaid internships are often considered a rite of passage for those entering the workforce. But any business looking to engage an intern must ensure that it does so in accordance with the law. This 3-part article series explains the relevant law (Part 1), outlines how to set up a proper intern arrangement (Part 2) and highlights the importance of getting the arrangement right (Part 3).
Intern war stories
If you’ve properly assessed a worker to be an unpaid intern based on the criteria set out in Part 1 of this series and engaged the intern utilising a properly prepared internship agreement as recommend in Part 2 of this series, you’re well on your way to having a problem-free internship experience.
But if you’ve jumped head first into launching your “internship” program without knowing the relevant law or taking the time to enter into an internship agreement, you may be in for some trouble ahead.
Implications of getting it wrong
If the internship arrangement is not a vocational placement and an employment relationship is found to exist, the business will be required to comply with the Fair Work Act 2009 (Cth) (FW Act) and any applicable industrial instrument. In addition to paying wages to the employee, this will also require the business to:
- advise the employee of their applicable award classification;
- pay casual loadings, overtime rates, weekend penalty rates, public holiday rates, etc. as applicable;
- if the employee is part-time, agree in writing the pattern of hours and days that are to be worked;
- make compulsory superannuation contributions;
- provide paid leave, including annual leave and personal/carer’s leave;
- pay annual leave loading;
- provide notice of termination;
- issue payslips; and
- keep other employee-related records as prescribed by the Fair Work Regulations 2009 (Cth).
As you can see from this list, incorrectly categorising an employee as an intern can snowball into a series of breaches of the FW Act.
The use of unpaid internships to exploit young workers is of particular concern to the Fair Work Ombudsman (FWO). For this reason, it pursues investigations and prosecutions of employers that fail to comply with their minimum obligations in respect of these vulnerable workers.
If a prosecution is successful, the court can order an employer to pay a penalty, pay an employee their outstanding entitlements or compensation, reinstate an employee or require the employer to stop the contravening conduct.
The maximum penalty for a breach of the FW Act by a body corporate is currently $63,000. However, it is important to recognise that the penalty imposed is per breach and so multiple breaches may result in multiple fines, as can be seen in the case examples outlined below.
Where a company has breached the FW Act, directors or managers can also be held personally liable for the same contraventions. This will be the case if the individual has been “involved in” the contravention.
Under section 550 of the FW Act, a person is “involved in” a contravention if the person has aided, abetted, counselled or procured the contravention, induced the contravention, been knowingly concerned in the contravention or conspired with others to effect the contravention. In other words, the individual must have been a “knowing participant” in the breach.
Where an individual is found to have contravened the FW Act, they may also be liable for a monetary penalty. The penalty that can be imposed is one-fifth of the maximum penalty that can be imposed against a body corporate for the same contravention. Currently, this can be up to $12,600 depending on the breach.
Whoops! They got it wrong!
We outline below a sample of decisions involving contraventions of the FW Act in respect of wrongfully engaging interns. As you will see, the penalties can be significant.
FWO v AIMG BQ Pty Ltd & Anor  FCCA 1024
AIMG advertised for the position of ‘Event planner internship’. Despite calling the position an internship, the successful candidate, Ms Shen, performed more than 180 hours of productive work for AIMG, such as organising events, editing its magazine, reception duties, telephone and email correspondence regarding event partnership and general office cleaning. These were the same duties that Ms Shen performed when later engaged as a permanent part-time employee, indicating that there had been an employment relationship from the outset. In addition, the internship did not have any affiliation or connection with the tertiary studies being undertaken by Ms Shen and so it did not meet the requirements for a vocational placement under the FW Act.
Ms Shen was not paid for the work she performed during the “internship” resulting in an underpayment of $2,272.01. AIMG also failed to comply with a range of employer obligations under the FW Act.
The maximum penalty that the Court could impose on AIMG was $867,000. This was based on 18 contraventions associated with Ms Shen’s “internship”, as well as the later employment of Ms Shen and another employee. Ultimately, the Court imposed a penalty of $272,850.
FWO v Naomi-Jayne Aldred  FCCA 220
Nexus Coaching Group Pty Ltd advertised two unpaid internship positions – a “Graphic Design Intern” and a “Multi Media Intern”. Three “interns” were ultimately engaged by Nexus. They were later offered employment or required by Nexus to become independent contractors because the business was “moving to a freelance model”.
Nexus went into liquidation and, following the company’s collapse, the FWO pursued its director and chief executive officer, Ms Aldred who had been responsible for the day-to-day management, direction and control of the company’s business.
Ms Aldred was investigated for multiple breaches of the FW Act including:
- not paying minimum rates or overtime in accordance with the relevant awards;
- not paying leave payments throughout employment and on termination;
- misrepresenting employment as independent contractor arrangements;
- failing to respond to a notice to produce; and
- altering payslips.
Although Ms Aldred rectified all underpayments and took responsibility for the actions that occurred, the Court found that her practices were “at best misleading and deceptive… and at worse formed part of a calculated and carefully executed fraud upon these three young women”. A penalty of $17,500 was imposed on Ms Aldred personally.
Fair Work Ombudsman v Crocmedia Pty Ltd  FCCA 140
Crocmedia was approached by two young people (a current student and a recent graduate) who asked if they could complete a period of work experience. They were engaged by Crocmedia as “interns” for 3 weeks of unpaid work experience.
At the completion of this initial period, Crocmedia retained the two for 6 and 12 months as ‘volunteers’. This arrangement involved reimbursement for expenses of $75 for weekday shifts and between $80 and $120 for weekend shifts.
The “interns” were considered to be employees given their work as producers on Crocmedia’s radio programs, with duties including:
- sourcing and arranging interviews;
- preparing audio for programs;
- cutting of audio for the programs;
- taking calls during the program;
- preparing and delivering on air a sport program; and
- preparing run sheets for the program.
Given their employment status, Crocmedia contravened the FW Act by failing to:
- pay minimum wages;
- pay casual loadings;
- pay in full at least monthly; and
- provide pay slips.
Despite co-operating with the FWO’s investigation, penalties totaling $24,000 were imposed on Crocmedia.
Compliance is key
The articles in this series outline the limited circumstances in which you can properly engage an individual as an unpaid intern. They also highlight the importance of using an intern agreement. As set out in this article in particular, the consequences of getting it wrong can cause significant financial and reputational damage.
The McCabes Employment group can assist you with the classification of workers and the preparation of suitable documentation to mitigate any risks associated with engaging non-employee workers, including unpaid interns.
This article first appeared on the McCabes website and has been reproduced with permission.