Many employers understandably believe that their business can provide valuable training, experience and education to unemployed individuals and students, and therefore see a mutual benefit to hiring unpaid "interns". However, employment standards legislation in most jurisdictions only permits interns to be unpaid in very limited circumstances, and employers can find themselves facing significant fines or court damages for failing to pay and provide employment benefits to people they called interns, but who are in fact deemed to be employees at law.

In addition to the potential legal liabilities, unpaid internships in Canada and the U.S. are now posing a risk to employers' reputations as well. Indeed, a national news story from Canada released just this week highlights a growing backlash against unpaid internships, framing them as "exploitation" and alleging harsh practices on the part of employers, including refusals to provide references to interns who will not work over 50 hours a week without pay.1

A decision from the State of New York in 2013 exhibits the reputational and legal damage that may result from improper use of unpaid interns. In Glatt v. Foxsearchlight Pictures Inc.,2 ("Glatt") a number of unpaid interns who had worked on the production of films including "Black Swan" and "500 Days of Summer" brought an action against Fox Searchlight and related companies, alleging that the interns had in fact been employees and were entitled to pay. The Court sided with the interns, granting judgment to certain of them and certifying a class action on behalf of others. Not only was this decision picked up by several news outlets, but one can imagine the potentially enormous liability that a class action by unpaid interns could impose on a large employer.

The recent Canadian news story indicates that there are an estimated 300,000 unpaid interns in Canada working for some of the "biggest, and wealthiest corporations." The story also notes that Federal NDP MP Andrew Cash has now tabled a private members bill to crack down on the practice, with similar pressure being placed on Ontario's government. Such developments will be important for employers to follow.

However, even without new legislation to crack down on unpaid internships, employers hiring unpaid interns in Ontario must tread carefully. The Employment Standards Act, 2000 ("ESA") and regulations, which, among other things, prescribe minimum wage, overtime entitlements and required rest periods, apply to all "employees" who work in Ontario. The ESA defines "employee" broadly and specifically includes "a person who receives training from a person who is an employer."

While certain types of employees are excluded from certain provisions of the ESA, the only exceptions applicable to unpaid internships are for educational work placements. In order to qualify as an educational work placement, the intern must be a student and the placement must be approved by the intern's school board, college or university to be used in connection with the intern's specific educational program. Further, even where an unpaid internship is approved, it must be properly papered between the employer, educational institution and intern to cover off respective obligations, including who will be providing Workplace Safety Insurance, if applicable.

With a growing class of largely young, skilled and educated unemployed individuals in both Canada and the U.S., along with the still recovering economy, it is inevitable that there will continue to be a growing supply and demand for willing unpaid interns. However, this is likely to lead to serious problems for employers who fall into the trap as, just with the Glatt case, interns may pursue legal recourse after having agreed to and having received the full benefit of the unpaid internship. Indeed, an agreement to contract out of minimum rights under the ESA is invalid. Employers should therefore be wary of hiring any unpaid interns and we recommend that legal advice be sought before doing so.

Footnotes

1. Goodman, Lee-Ann "It's just exploitation: Backlash against unpaid internships growing" The Canadian Press 2 March 2014. Available online at: http://www.ctvnews.ca/business/it-s-just-exploitation-backlash-against-unpaid-internships-growing-1.1710413

2. Eric Glatt, et al v. Fox Searchlight Pictures Inc., (2013) 11 Civ. 6784 (WHP)

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