The potential cost of free labour: what makes an intern an employee?

By Nathan Moy and Nicholas West-Foy

26 Oct 2017

If your business is considering taking on unpaid interns or work placement students, you can legitimately do so, but you should ensure the arrangement is structured as a vocational placement with the principal purpose of benefiting the student or worker (rather than your business).

The Fair Work Ombudsman (FWO) has been giving increasing attention to unpaid engagements—particularly internships. This is perhaps not surprising. Internships can be an attractive proposition for young workers, with the opportunity for them to develop their skills and experience. Sometimes, this is a pre-requisite to admission to a profession (as for lawyers). In other cases, it can give young workers a foot in the door in what can be a competitive labour market.

Although internships and unpaid placements are a legitimate engagement, such arrangements have garnered criticism recently because of the lack of clarity between genuine work experience and work performed by an employee. If categorised as an employee, the intern is, of course, entitled to all of the usual benefits, including wages, leave and other protections provided by law and industrial instruments.

As a result of the FWO's increased scrutiny in this area, employers considering engaging interns or other work experience students should turn their mind to how these arrangements are set up to manage the possible risks with the creation of an employment relationship.

Intern or employee?

Intern or employee? That is the question. Unfortunately, the concept of an employee is not defined in the Fair Work Act 2009.

Luckily, the Fair Work Commission (FWC) has recently provided some guidance on the definition of an employee versus intern, in Mitchell Klievens v Cappello Rowe Lawyers [2017] FWC 5126.

Mr Klievens was a law graduate who in early August 2016 commenced unpaid work at Capello Rowe Lawyers for the purpose of completing his practical legal training (PLT); a requirement for him to practise as a lawyer. Mr Klievens initially attended one to two days a week, which grew to five days. Eventually, the law firm offered Mr Klievens full-time paid employment in mid-October 2016.

In March 2017 the law firm experienced a downturn in business and terminated Mr Klieven's employment on the grounds of redundancy.

Mr Klievens lodged an unfair dismissal claim, but the law firm argued that he was not protected from unfair dismissal as he had not been an employee for six months. The law firm argued that Mr Klievens was not an employee during his PLT, and only became an employee in mid-October 2016.

The FWC agreed. Commissioner Johns found that Mr Klievan's PLT with the law firm was vocational training, and not employment. While the Commissioner acknowledged that Mr Klievens did occasionally undertake work that was productive and beneficial for the law firm, this was incidental to the primary purpose of the PLT, and clients were not charged for it.

In coming to this view, Commissioner Johns outlined some useful consideration that assist in determining whether an intern could be an employee:

  • Reason for the arrangement: the more productive the work being undertaken (as opposed to just observation, learning and skill development), the more likely it is that a person is an employee.
  • Length of time: the longer the period of the arrangement, the more likely the person will be an employee.
  • Significance to the business: if the person is doing work that would otherwise be done by an employee, or the work is necessary for the business, it is more likely the person is an employee.
  • The duties of the person: if the person is not expected or required to attend work or undertake productive activities, they are less likely to be an employee.
  • The nature of the benefit of that work: if the business is getting the main benefit from the work of the person, it is more likely they are an employee.

Lessons for employers

Mr Kleivan's case related to protection from unfair dismissal, but it is likely that a similar approach would be adopted by the Courts in assessing whether an unpaid internship or placement is really an employment arrangement, which could have significant consequences for an employer with respect to the obligation to pay wages, leave and superannuation - not to mention the possible civil penalties for failure to pay these entitlements.

If your business is considering taking on unpaid interns or work placement students, you can legitimately do so. The arrangement should, however, be structured as a vocational placement with the principal purpose of benefiting the student or worker (rather than your business). If you're unsure, seek legal advice.

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