Floats Like an Intern, Stings Like an Employee: The Legality of Unpaid Internships

The issue of unpaid internships, both in the legal sector and elsewhere, can be polarising. A 2012 survey found that 50 per cent of law student respondents had undertaken unpaid work experience, with responses ranging from ‘slavery’ to ‘valuable learning experience’.

In both Australia and the United States of America, the ‘intern economy’ is flourishing. Yet on both sides of the Pacific, the legalities of offering workplace experience without remuneration are uncertain. In the US, several high-profile entertainment and publishing companies have faced law suits for failing to pay interns, while one such case was recently decided by the Australian Federal Circuit Court in Fair Work Ombudsman v Crocmedia Pty Ltd.

This question has particular importance for both law firms and employment lawyers. As demonstrated by the Fair Work Ombudsman-commissioned survey, unpaid internships and work experience in the legal industry are commonplace. Although the specific circumstances will be paramount to determining the legality of such arrangements, unwary firms could find themselves prosecuted by the Ombudsman. For practitioners of employment law, the relevant law is complex and jurisprudence on this topic is still developing. If the litigious trend in the US finds its way to Australian shores, disgruntled interns could fire a barrage of legal action at unsuspecting employers.

Moral Dilemma
The internship issue is, as Riethmuller J acknowledged in Crocmedia, ‘a difficult topic’. When interns actively apply for these unpaid roles, and employers act “charitably” by allowing them the opportunity to gain essential experience, it is difficult to feel sympathetic. This is particularly so when it is the intern primarily benefiting from the arrangement — perhaps in an observational role where they are not producing any substantive work for the employer.

Yet as the boundary between internship and employment blurs, broader moral issues arise. In a 2013 report for the Fair Work Ombudsman, respected employment law academics Andrew Stewart and Rosemary Owens considered this dilemma, observing:

An intelligent and articulate graduate from a wealthy family who opts to do months of unpaid work in order to break into their chosen profession may not seem very vulnerable. They may not seem to be a “victim” of exploitation. But the point of… taking action is not necessarily to protect them as an individual. It is to assert a principle — a fair day’s pay for a fair day’s work — that underpins our system of minimum labour standards.

While this “moralising” of the issue may not sit comfortably with everyone, Stewart and Owens’ approach has helped inform the Ombudsman’s response to the growing intern economy in Australia. Their decision to prosecute in Crocmedia despite the employer’s cooperation speaks volumes as to the organisation’s determination to pursue the ‘strong public interest in deterring employers from significantly underpaying young workers’ entitlements through unpaid work arrangements’, and recent success will only encourage further litigation.

Accordingly, employers of all shapes and sizes would be well advised to think carefully before entering into unpaid internships or work experience arrangement. Characterised properly and undertaken in a legally-compliant manner, such arrangements can be mutually beneficial: offering much-needed experience for the individual and giving the employer an opportunity to train and assess a potential future employee. Yet following Crocmedia, the risks attaching to a cavalier approach have significantly increased. Read More.

By John Wilson, Managing Legal Director, Employment Law.

First published in Ethos, the ACT Law Society’s journal.