Are your unpaid internships legal?

Unpaid internships can provide valuable workplace experience for those volunteering but if organisations get it wrong, they could find themselves facing a costly lawsuit – here, two top lawyers explain how HR can avoid any risk.

“Unpaid internship contracts should be carefully drafted to ensure that they are clear that there is no employment relationship, and the intern is performing the services on a voluntary basis,” says Carl Blake, a senior associate with Simpson Grierson’s employment law group.

“For example, there should be no reference to any minimum entitlements that are owed to ‘employees’, such as sick leave and annual holidays.”

Blake says organisations should also be careful that they do not provide any reward for the services provided by the unpaid intern – this includes non-monetary awards such as providing lunch or a discount for the business products.

The nature of work being done also has an impact on the potential legality of unpaid internships, says Charlotte Bates, senior associate at Bartlett Law.

“Before you engage an intern, look at what you want the intern to do,” she tells HRD. “If you want someone to come in and do work that is an integral part of the business – but you want to avoid paying for it – the internship is not likely to be fair and the intern could be classified as an employee.”

HR professionals and employers should also remember that interns require supervision, says Bates.

“The intern should have a supervising manager or mentor,” she tells HRD. “It’s about training the intern and exposing them to the company’s work, providing the intern with as much ‘real’ work experience as possible.”

If an organisation fears their unpaid internship isn’t kosher, they should take action immediately, urges Auckland-based Blake.

“If employers think that the ‘real nature of the relationship’ between them and any unpaid interns may be one of employment (for example, because they have been rewarding the intern's services), then they should consider whether they wish to continue to engage the intern for reward,” he tells HRM.

“If they do, they should set in place clear contractual arrangements between the parties, specifying that the intern is an employee, or an independent contractor, as the case may be.”

Where the employer benefits from what the intern is doing, or if the intern if filling a key role within the business, they may stray into employee territory which would legally entitle them to pay and all other standard benefits, warns Bates.

“If an unpaid intern successfully claims that they were actually an employee, then the employer could be liable to pay them minimum entitlements, including minimum wage and holiday pay entitlements, going back six years,” says Blake.

“We recommend that employers seek legal advice if they face this issue, as it can be tricky and options will need to be considered on a case-by-case basis.”