In recent years, Australia has witnessed a marked increase in the density and willingness of volunteer and unpaid workers to join the workforce. In fact, for many young people at the end of their academic life, undertaking an unpaid internship has become a naturally viable step in scoping the market for work opportunities. For many graduates, an unpaid internship provides practical experience and a launching pad to other possible career paths. For employers, it provides an opportunity to trial an employee’s skills before committing to an offer of employment. But what is the position at law, and what does the Fair Work Act 2009 (Cth) (“FW Act”) and other relevant employment relations legislation have to say about unpaid work arrangements.
Some unpaid work arrangements are permissible and others are not. Depending on the nature of the arrangement, the person doing the work may in reality be an employee and therefore entitled to be paid the minimum base rate of pay under an applicable modern award or other industrial instrument, along with other minimum national employment entitlements.
Whether an unpaid work arrangement is lawful under the FW Act depends on:
- whether an employment relationship exists; or
- whether the arrangement involves a genuine vocational placement.
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 FW Act, 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. If an employment relationship is found to exist, an 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.
For an employment relationship to exist, it must be clear, on an objective basis that:
- the parties intended to create a legally binding relationship of employment;
- there was a commitment to perform work for the benefit of the employer;
- there was a commitment on the part of the employer to provide valuable consideration (training or experience is sufficient) in exchange for the person’s labour; and
- the person was not performing the work as part of carrying on a business of their own.
The assessment is not however limited to the above factors, and a worker may nevertheless be regarded as an employee if they satisfy the “multi-factorial test” that has been developed by common law to determine whether an employment relationship exists. These additional factors include:
- the purpose and nature of the relationship;
- the duration of the arrangement;
- the significance of the arrangement to the business;
- the actual duties performed and obligations owed by the person; and
- who the relationship benefitted the most.
Despite the guidance provided by the FW Act and at common law to determine whether an unpaid work relationship is permissible, there is understandable community concern, including at the Fair Work Ombudsman (“FWO”) level, that unpaid workers (such as young people, migrants and other vulnerable categories) are being exploited because they are forced to accept volunteer work as a pathway to paid work in their desired occupation.
A recent report published by the FWO titled “Experience or Exploitation” examined this very issue. Although the report discussed a number of case studies, one example in particular was most illustrative of the issue. The report states that the case study involved a recruitment firm who advertised for a voluntary graduate role through SEEK. The placement purported to offer “hands on” experience initially with a potential job opportunity. In this particular instance, the FWO investigated the matter and found that although the arrangement was largely experiential and observational in nature without an expectation of productive work, in a few cases “hands on” work had been performed. On an overall basis, however, the FWO was satisfied that there was neither significant benefit to the firm from the work and no expectation to perform work, and accordingly no employment relationship was found to exist.
Although in that case study the FWO found no employment relationship existed, in the recent decision of Fair Work Ombudsman v Crocmedia Pty Ltd  FCCA the Federal Circuit Court effectively “threw the book” at Cromedia after the organisation took on a number of job-seekers under unpaid work arrangements whilst completing their studies. In this case, the employees performed unpaid work for around three weeks before being employed by Cromedia on a casual basis, and when the casual arrangement was put in place, the employees were paid below minimum rates required by the applicable modern award. The Court held that Crocmedia erroneously classified the students as interns for the initial three week work trial period as that arrangement was not a genuine vocational placement, and had breached the FW Act by failing to pay the employees in line with the minimum rates of pay and entitlements provided under the applicable modern award. The Court ordered the company to pay backpay to the employees of $22,168.08 and ordered civil penalties against Crocmedia amounting to $24,000 for various breaches of the FW Act and applicable modern award.
Given the exponential growth of internships, volunteer work experience and unpaid vocational placements in Australia, and the increased attention to this area by the FWO, employers must carefully consider whether they are exposing themselves to underpayment claims and potential legal action by entering into these kinds of arrangements.
We recommend that before recruiting any one 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 FW Act;
- 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.
For completeness, we note that although an employer may not be required to remunerate a person working in accordance with unpaid arrangements, this does not obviate an employer’s obligations under work health and safety legislation and human rights legislation, and an employer must be vigilant to observe the legal requirements in these areas.
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