Deceptive realities of unpaid internships and work experiences

We all, at some point, have been stuck in the work experience paradigm; that is, where a person is not able to apply for positions due to lack of experience but cannot obtain such experience for the same reasons.

Hence, in today’s competitive job market, internships have always been key to getting a foot in the door. These arrangements, where the employer incurs low expense and risk in exchange for training have raised significant legal and ethical debates. While some argue that such experiences provide invaluable learning opportunities, others contend that they exploit vulnerable jobseekers by sidestepping fair compensation practices and labour laws.

A nationally representative study of internships in 2016 found about 60 per cent of Australians aged between 18 and 29 had participated in at least one stint of unpaid work experience in the five years prior. Whether these were arranged as trial periods for positions or as internships for educational accreditation, the question remains: Do they create legal relations as per an employment contract?

At common law, for any contract to be enforceable there needs to be:

• An offer
• An acceptance
• Consideration
• An intention to create legal relations.

Assuming the first two are agreed upon, what constitutes an intention to create a legal relationship in a workplace arrangement? We have reviewed some case law below.

In Pacesetter Homes Pty Ltd v. Australian Builders Labourers Federated Union of Workers (WA Branch) (1994) 57 IR 449, unemployed school leavers were given the opportunity to gain work experience for up to six months but were under no obligation to attend on any particular day. This lack of “mutuality of obligation” or the intention to create legal relations led to the denial of an employment contract that the school leavers claimed.

Hence in circumstances where the arrangement is informal with little obligations, it is likely that it will be construed as not an enforceable contract.

On the other hand, instances have arisen where employment contracts were recognised. The case of Cossich v. G Rossetto & Co [2001] SAIRC 37 serves as an example, where the true nature of the relationship was determined to be that of an employment contract, regardless of how the arrangement was initially described. The key difference in this case was the long-term nature of the arrangement.

What does the Fair Work Act 2009 say?

Under section 12, the Fair Work Act does not consider students as employees and hence describes student internships as “vocational” placements. A vocational placement is defined as a placement that is undertaken without remuneration, as a requirement of an education or training course; and authorised under a law or an administrative arrangement of the Commonwealth. These are treated as lawfully unpaid experiences by the Fair Work Act and are now common practice in certain industries.

Generally speaking, if payment is offered for the work of the student, the arrangement would then be construed as an enforceable contract.

There has since been intense scrutiny by the Fair Work Ombudsman (FWO), especially concerning unpaid work experiences falling outside the “vocational placement” exception under the Fair Work Act. In 2019, the FWO took action against the fashion start-up “Her Fashion Box Pty Ltd” and its director, Kathleen Purkis, for underpaying three employees by a total of $40,543 between 2013 and 2015. The employees were denied various entitlements, including minimum wages and leave.

The court imposed penalties amounting to $329,133, emphasizing the seriousness of the contraventions and the need to deter similar behaviour in the future. The FWO warned against the misclassification of workers as interns to avoid paying lawful entitlements.

Some states such as Queensland have since adopted their own specific legislation to tackle the concept of unpaid work. The Education (Work Experience) Act 1996 (Qld) provides that a student undertaking work experience arranged by an educational establishment, other than as a mandatory or assessable part of a higher education course “is taken not to be the employee of the work experience provider and the provider is taken not to be the employer of the student.”

However, most states continue to rely on Commonwealth legislation to cover regulation over placements.

Key takeaways for HR

Internships are a great opportunity for jobseekers and students to gain practical experience. However, it is important to determine the nature of the placement prior to engaging in any form of work.

This means that an internship without compensation should still be documented to make the terms of the relationship clear.

Chamberlains is a full-service law firm coving commercial to property, family to insolvency, private wealth to personal injury with offices in Canberra, Sydney, Newcastle, and Perth.