Be wary of work experience and interns

A radio and television program producer company has been fined $24,000 following its underpayment of two young interns over periods of 6 months and 12 months respectively.

The proceedings were commenced by the Fair Work Ombudsman (FWO).  This was the FWO’s first prosecution for underpayment on interns since a 2013 university report (commissioned by the FWO) that discussed the engagement of interns or young persons on work experience.

Background

The two employees in this case were initially taken on by the company for three weeks’ unpaid work experience.  Following the period of work experience, the employees were engaged on a casual basis – however, they were paid by way of shift payments which the company classified as ‘reimbursement for expenses’.  The total amount received by the two employees was $17,720.  If the employees had been paid according to the relevant minimum wage, they would have received $22,168.08 and therefore they were underpaid in this respect.

During the investigation by the FWO there was discussion around the framing of the payments received by the employees as ‘expenses’.  The company accepted ‘that they (expenses) cannot be offset against wages due and owing, therefore the employees were paid the total amount of $22,168.08, resulting in the employees retaining both the expenses payments and the full wages due and owing’.

The payments were made in short time following the FWO’s investigation.

Prosecution

Despite the admitted cooperation of the company throughout the investigation and the proceedings, the FWO sought that penalties be imposed on the company.

During the hearing, the penalties were grouped into four categories:

• failure to pay minimum wages;
• failure to pay casual loadings;
• failure to pay in full, at least monthly; and
• failure to provide pay slips.

The FWO argued that both the underpaid employees were young and had agreed to work for free to gain a competitive advantage in terms of gaining entry into the industry.  The FWO also pointed to the length of the arrangement by which the employees had been underpaid, being 12 months for one of the employees and 6 months for the other.

Conversely, the company argued that it did not have ‘adequate systems’ in place to review these types of work experience arrangements and guard against these type of errors.  It argued that it had not been defiant of the law in this circumstance.

Judge Reithmuller of the Federal Circuit Court of Australia said of these particular submissions:

“On balance I am not persuaded that the [company] has been openly defiant of the law, but rather engaged in an arrangement that the [company] believed avoided the consequences of the minimum wages requirements under the Act. However, the Respondent cannot avoid the proposition that it is, at best, dishonourable to profit from the work of volunteers, and at worst, exploitative.”

Judge Reithmuller noted the company’s immediate action to correct the underpayment and the fact that the company had elected to pay the full amount of wages owing on top of the ‘expenses’ payments previously made.  This meant that the company had in fact been put to more expense than if they had paid the appropriate minimum wage rate in the first place.

His Honour determined that due to the extent of the company’s contrition, corrective action and cooperation during the investigation, a discount of 30% was appropriate.

Importantly, Judge Reithmuller’s comments below service as a warning to employers in relation to the engagement of interns:

“Profiting from “volunteers” is not acceptable conduct within the industrial relations scheme applicable in Australia. In some industries, and the media sector is a good example, the popular appeal of the industry will lure many young people to seek any opportunity to obtain a toehold in the industry. This, coupled with any ambiguous messages that flow from films and television shows from overseas, may have led some businesses to take advantage of aspiring youth.

There is little doubt that this case, and cases like it, will attract considerable media attention, which will have a positive effect in informing and educating employers generally. For this reason there can also be little doubt that the penalties are likely to increase significantly over time as public exposure of the issues in the press will result in respondents not being in the position of being able to claim that a genuine error of categorisation was made.”

Lessons for employers

The question as to what constitutes an employee and what constitutes a work experience person or ‘volunteer’ can be a difficult one for employers.  This case reiterates that where a person (in this case on work experience) begins performing duties that are to the benefit of the business, then that person will be considered an employee of the business.  Therefore, they will be entitled to the minimum terms and conditions provided by the Fair Work Act 2009 (Cth) (FW Act) and any applicable modern award or enterprise agreement.

We also note that the FW Act contains an exclusion from the definition of a ‘national system employer’ who is covered by the Act where a person is on a ‘vocational placement’. ‘Vocational placement’ is defined as a placement that is:

“(a) undertaken with an employer for which a person is not entitled to be paid any remuneration; and

(b)  undertaken as a requirement of an education or training course; and

(c)   authorised under a law or an administrative arrangement of the Commonwealth, a State or a Territory.”

Employer’s need to be wary of this definition and understand that unless the unpaid placement is undertaken as part of an education or training course and is appropriately authorised e.g. a school student who is present in the workplace for the purposes of observation and learning rather than performing duties that benefit the employer, then it is most likely that the person should be classified as an employee.

Employers should note Judge Reithmuller’s comments about the likelihood of future penalties for similar conduct increasing as public awareness increases.  Employers should seek legal advice where they are uncertain as to the classification that might apply to their ‘work experience’ related arrangements.