Recently, there have been an increasing number of people entering the workforce by way of unpaid work experience or internships. I'm sure many of you have had a young graduate approach you seeking an opportunity. "I'm happy to do it for free", they say. "Sure", you think to yourself, "they're green; it's fine not to pay them".
But is it?
Is unpaid work lawful?
Unpaid work will be lawful under the Fair Work Act 2009 (Cth) (Act) if:
- an employment relationship does not exist between the parties, or
- the arrangement involves a vocational placement.
If the unpaid work does not fall into the above categories, then you may be at risk of an underpayment claim, breach of the Act or a prosecution by the Fair Work Ombudsman (FWO). This can result in a penalty of up to $51,000 for corporations or $10,200 for individuals.
Does an employment relationship exist?
An employment relationship will exist if there is an intention by an employer to create a legally binding employment relationship with a worker. This can be determined by considering the following:
- What is the purpose of the arrangement? If the person is required to perform a role normally carried out by a paid employee, then it is more likely that an employment relationship exists.
- Who is the arrangement designed to benefit? The more benefit your organisation obtains from the worker, the more likely it is that the person is an employee.
- What are the person's obligations? Employees are generally required or expected to perform productive work for a business.
- How long is the placement? The longer a person is performing duties for you, the more likely it is that they are an employee.
The circumstances differ for each worker, so it is important to turn your mind to the above matters each time you consider engaging an individual for unpaid work.
A person on a vocational placement is excluded from the definition of an "employee" under the Act. A vocational placement is a formal work experience arrangement that is part of an education or training course.
The educational institution requiring the student to undertake a vocational placement usually provides documentation to support this. If none is provided, then you should request to see it before allowing the person to commence work. Paying them nothing may end up costing you more if you aren't careful at the outset.
Unpaid work experience and internships
Employers are often approached by young people requesting unpaid work experience or an internship. It's tough out there so it is understandable that people want to get some experience to help boost their employment prospects. But is it lawful?
Unpaid work experience or internships that do not meet the definition of a vocational placement can be lawful where the placement:
- is mainly for the benefit of the person doing the placement
- does not involve a requirement or expectation that the person perform productive work
- is for a relatively short period, and
- the work undertaken does not result in significant commercial gain or value for the business.
Unpaid work experience is less likely to involve an employment relationship if it is primarily observational.
Recently, the issue of unpaid interns has been under scrutiny by the FWO. In mid-2013 the FWO took legal action against Crocmedia, a Melbourne-based media company, for underpaying two workers a total of $22,168. The workers were allegedly misclassified as volunteers or contractors, when they should have been paid as casual employees. Although Crocmedia rectified the underpayments, it may still be liable for a penalty of up to $51,000 for breaching the Act. If the FWO is successful, interns would have up to six years from the date of internship to claim back pay, superannuation and leave entitlements if their internship is classified as employment.
You may also consider asking a person to undertake a trial to assess their suitability for a role. This is lawful so long as:
- it involves no more than a demonstration of the person's skills relevant to the job
- it is only for as long as is needed to adequately assess the person's skills (more complex work will often require a longer trial period), and
- the person is under the direct supervision of the potential employer.
Remember that you can also assess a person's suitability during the minimum employment period. Although this involves paying the person the applicable minimum rate of pay, you can rest easy knowing that the FWO won't be knocking on your door.
If a worker is an employee then it is necessary to pay them: money, that is. Unfortunately, this requirement was news to pizza store owners who attempted to save dough (pardon the pun) by subsidising workers' pay with pizza.
The franchisees of two La Porchetta restaurants were investigated by the FWO following a complaint from the parent of a worker. The FWO discovered that 111 employees had been underpaid a total of $258,000. The owners were fined $334,818 by the FWO and were ordered to back pay the underpaid workers.
This decision sends a strong message to employers that such conduct will not be tolerated. If you are considering paying staff with non-monetary compensation, then it is crucial that you seek legal advice before doing so.
Unpaid work experience is a great opportunity for a person looking to break into the workforce. But the nature of the work must be considered to ensure that the unpaid work is lawful.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.