Unpaid internships are increasingly becoming the default way of beginning a professional career in Australia. Last May, we wrote about the increased use of volunteer and unpaid workers by employers and the potential legal issues surrounding the use of unpaid work arrangements.
By way of summary, it is important to remember that some unpaid work arrangements are permissible at law, while others are not. Whether an unpaid work arrangement is lawful under the Fair Work Act 2009 (Cth) (“FWA”) depends on whether an employment relationship exists or whether the arrangement involves a vocational placement for the purposes of training.
An unpaid work experience opportunity or internships can be lawful if it is part of a genuine vocational placement. To qualify there must be a formal arrangement that is part of an educational or training course requirement undertaken on an unremunerated basis and authorised by a law or an administrative arrangement of the Commonwealth, a State or Territory. If the arrangement satisfies and is within the meaning of the FWA, the arrangement will be lawful.
When, however, an unpaid work arrangement is not a vocational placement, the arrangement can only be lawful if no employment relationship exists. In essence this means the work performed is for the benefit of the intern, is for a short period of time and is for the primary purpose of providing the worker with on the job training. If, however, the real benefit is to the employer, it is likely that an employment relationship will exist, and the employer may be liable to the employee for (among other things):
- minimum rates of pay and superannuation;
- leave and other paid entitlements provided under the National Employment Standards; and
- other benefits such as penalties, loadings, allowances and overtime as provided by the terms of any applicable modern award or industrial agreement.
Over the past few years, there have been increasing concerns that unpaid workers (which include young people, migrants and other vulnerable categories) may be exploited because they are forced to accept volunteer work as a pathway to obtain paid employment in their chosen professions. In this regard and considering the new ‘vulnerable workers’ amendments made to the FWA, employers must carefully consider whether they are exposing themselves to underpayment claims and/or other potential legal action by entering into these kinds of arrangements.
CASE LAW
In the recent decision of Mitchell Klievens v Cappello Rowe Lawyers [2017] FWC 5126 the Fair Work Commission (“FWC”) considered whether unpaid training for a graduate lawyer could be counted in determining whether he had a sufficient period of employment to allow him to bring an unfair dismissal claim.
Mr Klievens began unpaid practical legal training with Cappello Rowe lawyers in July 2016, initially working on his flex days from the Health Care Complaints Commission (“HCCC”). When his employment with HCCC ceased last August, he increased his days of work to between three to five days a week, and in October the law firm engaged him as a full-time Law Clerk on an annual salary and subject to a six-month probationary period.
The law firm subsequently dismissed him in March this year, the same day he was diagnosed with anxiety, insomnia and depression and two days after he complained that a number of workplace issues were affecting his health and advised that he would be seeking a referral to a psychiatrist. The letter terminating his employment stated that his employment would “end immediately” because the firm had settled some large matters and experienced a decline in new business and the position of junior lawyer at the Sydney office was no longer needed.
In order to bring an unfair dismissal application, Mr Klievens needed to establish the unpaid period was part of his tenure, in order to satisfy the minimum six-month employment period for the FWC to hear his application.
Mr Klievens submitted that his unpaid period should be counted as employment because the nature of his effort meant it could not be classified as work experience and the time he spent working at the law firm exceeded the time requirement to complete his practical legal training. He further argued that he was completing the same work as a paid employee, was included in group emails regarding matters and was subject to a high degree of control regarding workplace attendance. Ms Cappello of Cappello Rowe Lawyers argued that during the unpaid period, Mr Klievens’ time was not recorded or billed to clients and accordingly he did not have any financial targets and he was given files to read or research that had little benefit to the law firm but were intended principally for his education.
The Fair Work Commission noted a number of different forms of unpaid work existed including vocational placements, unpaid job placements, internships, work experience and trials. In certain circumstances, not paying a person for the work being completed can be lawful. For example, for defined vocational placements, or where a job seeker is not an employee, but rather is receiving benefits from the government and undertaking a work placement as part of a Commonwealth employment program. However, in cases where the person is actually an employee, they are entitled to pay and conditions under the FWA. The period of unpaid work would also count towards determining if the person has met the requirements to bring an unfair dismissal application with the FWC.
The FWC confirmed unpaid work experience, job placements and internships that are not vocational placements will be unlawful if the person is in an employment relationship with the business for whom they are working. The definition of ‘vocational placement’ is defined in the FWA but the FWC also stated that each matter needed to be determined on its own facts, and it was necessary to determine whether “the arrangement involves the creation of an employment contract”, whether written or verbal.
Commissioner Johns sated that there are a range of indicators that an employment relationship exists, and it needed to be assessed on a case by case basis. The indicators include:
- An intention to enter into an agreed arrangement to do work for the employee;
- A commitment by the person to perform work for the benefit of the business or organisation; and
- An expectation that the person receive payment for their work.
The FWC also considered the following indicators to determine whether an employment relationship existed:
- Reason for the arrangement;
- The length of time;
- Significance to the business;
- The work the person undertook; and
- Who was getting the benefit.
In this decision, the FWC accepted that Mr Klievens’ unpaid period was for the purpose of a vocational placement, as his practical legal training was mandatory for admission to practice as a lawyer and it was meant to comprise of real work not just observational work. Although Mr Klievens did complete relevant and useful work, there was no evidence that he was obliged to help generate revenue and there was no intention to enter into an employment arrangement with him. It was also clear that there was no expectation that he be remunerated for the work.
In valid internships, Commissioner Johns noted that the person who is doing the work should get the main benefit from the arrangement. Alternatively, if it is the business who mainly benefits from engaging the person and their work, then it is more likely the person is an employee. In the present matter, it was clear that Mr Klievens had finished his law degree, was eager to obtain a practicing certificate and could not do so without completing his practical legal training. Furthermore, and notably, the law firm did not charge clients for his work. As such, in all the circumstances, Commissioner Johns held the main benefit from the arrangement flowed to Mr Klievens and dismissed his unfair dismissal application.
LESSONS FOR EMPLOYERS
While this decision was favourable to the employer, there have been a number of other decisions where the Fair Work Ombudsman successfully prosecuted companies for utilising unpaid or underpaid interns. For instance, in Fair Work Ombudsman v AIMG BQ Pty Ltd [2016] FCCA 1024, the Federal Circuit Court imposed a penalty of almost $300,000 on a media company that had failed to pay an intern for 180 hours of work and committed various other breaches of the FWA.
This decision provides a timely reminder of the importance of ensuring that if your business is offering any type of work placement, internship or unpaid training you are well informed of your legal position and not incidentally creating an employment relationship, thus potentially exposing yourself to underpayment claims and other risks, including penalties.
We recommend that before recruiting any person to undertake unpaid work, employers:
- carefully assess whether the arrangement is genuinely vocational and in connection with a training or education requirement within the meaning of the FWA;
- whether the placement is for the benefit of the employer or genuinely for the purpose of allowing the intern to obtain experience and insight to the area of work;
- whether, on balance, any employment relationship is likely to exist based on the common law factors considered by the Courts; and
- if the arrangement is for all intents and purposes a legitimate internship or work experience opportunity, that this is reflected and properly recorded in an appropriate offer letter.
If you wish to further discuss the steps that can be taken to mitigate the legal risks associated with unpaid workers or have an employment matter for which you require assistance, please do not hesitate to contact us for specialist advice.
This alert is not intended to constitute, and should not be treated as, legal advice.