It can be tempting, in tough economic times, to think that putting interns or work experience students to work is a savvy way of giving your business a competitive advantage. This is a questionable, and very risky, business strategy. A manager might even think that offering the intern a longer-term work experience opportunity is mutually beneficial. Such arrangements can be unlawful and readily fall foul of the Commonwealth Fair Work Act 2009. In recent years, unpaid work arrangements such as internships and work experience has come under scrutiny, particularly by the Fair Work Ombudsman (the FWO).
Case note: ’Meet the Gang’ – the FWO prosecutes unlawful internships
A recent case heard and decided in the Federal Court highlights the legal risks and the financial consequences of not making sure that your student or graduate employment arrangements comply with employment laws and staff entitlements.
The FWO prosecuted a media company, which services the film and television industry, for failing to pay the minimum wage to two university students it had hired as interns. The students initially offered and worked for three weeks’ unpaid work experience. During that time they did productive, ‘hands on’ work in the business. After those three weeks, they were then employed as casual staff on specific projects as ‘volunteers’ or ‘contractors’. The company also reimbursed the students for their expenses, but it didn’t give them pay slips for their time worked, nor did it pay them the minimum wage.
The FWO investigated the matter. The company, probably on very sensible legal advice, decided to co-operate with the FWO’s investigation and quickly admitted that it had failed to pay the students the minimum wage. It then took steps to pay them the full amount owing to them. So far, this cost the business $22,168.08, plus the cost of getting employment law advice. The company also had to admit that the expenses allowed to the students could not be offset and let the students keep the $17,720 in expenses they had reimbursed. A further loss.
But the FWO was still concerned about the bigger picture and wanted to send a clear, public message as a deterrent to all businesses that this kind of unlawful employment behaviour is not acceptable. The FWO argued there was a strong public interest to take this matter to court and sought an order from the Federal Court for penalties against the business. The court agreed. It found that the students were employees and that the company had failed to pay minimum wage entitlements and casual loadings, failed to pay wages in a timely way and failed to give pay slips. These were all breaches of the company’s employer obligations under the Fair Work Act.
The court then ordered the company to pay $24,000 as penalties for these breaches. The maximum penalty the court could have ordered, in these circumstances, was $115,500. In addition, the court was also scathing of the company’s employment practices, saying it was: ‘at best, dishonourable to profit from the work of volunteers, and at worst, exploitative.’ In fairness, the court did recognise the remorse, early admissions and co-operation the company displayed during the investigation and in acting quickly to pay the students’ entitlements in full. For those reasons, the court leniently discounted the total penalty it would otherwise have awarded.
The official bill was $63,888.08. But this doesn’t account for the cost to the business of getting employment law advice and the time cost of co-operating with the investigation and the time and legal cost of a Federal Court hearing. Finally, what’s the intangible cost of reputational damage to your business in your industry and as an employer in the labour market? As the court put it: ‘this arrangement has cost [them] considerably more than would have been the case had minimum wages been paid to employees.’
Altogether, a very expensive exercise in ‘cheap labour’.
See: Fair Work Ombudsman v Crocmedia Pty Ltd [2015] FCCA 140 (29 January 2015)
Recommendations
If you have a student or graduate in your practice who engages in work of a kind that is, in effect, an ‘employment relationship’ then that person is likely to be an employee of the business under the Fair Work Act 2009. All employees are entitled to:
- a minimum wage
- employment terms at the National Employment Standards
- employment terms of any applicable award or enterprise agreement
In the architectural profession, the Architects Award 2010 will apply to all your student, graduate and registered architect employees.
Unpaid arrangements can be lawful. The Fair Work Act allows for ‘vocational placements’ which must meet strict criteria. For an architect in practice offering internships and vocational placements to a student can be a rewarding exercise for all involved, but must be entered into lawfully and for the right reasons.
The likely costs and penalties of breaches of the Fair Work Act are high and the above case is a warning that the courts and the FWO are intent on deterring and penalising bad employment behaviour. If you have engaged graduates or work experience students, or are planning to, you should get employment law advice to make sure your current and all proposed arrangements are lawful and are properly vocational placements under the Act. Could your business afford not to?
More information
If you are unsure about the nature of the arrangements or work that your work experience student or graduate is doing in your practice, you should get general industrial advice from an HR consultant or preferably specialist legal advice from an employment lawyer. If you have access to Acumen, you can try one of the law firms on the Free Legal Reference Service.
For more general information see the Fair Work website fact sheet on unpaid work.