Internships - paid or unpaid?

The Fair Work Ombudsman (FWO) announced yesterday that it has commenced proceedings against Her Fashion Box Pty Ltd, a fashion industry start up that appeared on the reality TV show, ‘Shark Tank’.  The FWO is pursuing Her Fashion Box and its sole director for running an unpaid internship program that resulted in at least three workers being underpaid around $40,000. Two of the interns were engaged as graphic designers and the third was engaged as a full time brand partnership manager. The FWO alleges that each intern was engaged as an employee to perform productive work in the business and was therefore entitled to receive minimum award salary and entitlements. 

The law around offering work experience and interns is clear.  As the Fair Work Ombudsman said in yesterday’s media release, “Employers cannot simply choose to label an employee as an ‘intern’ in order to avoid paying their staff according to their lawful entitlements”.

Photography / Laura Kaestele

Photography / Laura Kaestele

Employers can legitimately offer work experience placements to students if the placement is required as part of an approved education or training course. Various rules apply including that:

  • there must be no entitlement to payment;
  • ·the placement must be undertaken as a requirement of an education or training course; and
  • the placement must be an authorised placement.  Courses offered by universities, TAFE colleges and schools will typically meet this test.

Companies engaging interns that do not meet the above rules must take care to ensure that their interns do not perform productive work in an employee like way.  An intern who perform productive work that benefits the company will likely be an employee and entitled to salary and other employment related benefits. Unpaid interns should only be engaged to watch, learn and gain experience relevant to their industry or profession.  The benefit of the internship should favour the intern – not the company.

Employers, directors and managers who fail to get this right are exposed to orders for compensation and penalties.  In the Her Fashion Box matter, the FWO is seeking orders that Her Fashion Box and its sole director pay compensation for unpaid employee entitlements along with penalties of up to $51,000 per contravention for Her Fashion Box and up to $10,200 per contravention for the director. The FWO has also applied for an injunction restraining Her Fashion Box and its director from underpaying workers in the future. Companies, managers and directors who are unsure about the status of unpaid workers should seek advice.

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