Startups urged to stop unlawfully hiring interns

9th June, 2017

The prevalence of startups hiring interns unlawfully could lead to “carnage” – and individuals and businesses could be liable for abusing the arrangement.

Recently successful Shark Tank contestant Kath Perkis, director of Her Fashion Box, was taken to court by the Fair Work Ombudsman over a string of underpayment claims and unpaid internships.

It highlighted the practice of startups taking on employees and labelling them as ‘interns’.

Even if interns are brought into a business with the best of intentions, the unclear legal definition of an intern makes it a complicated issue.

“Internships are a really vexed issue right now,” Principal at Hall Payne Lawyers and industrial law expert Luke Forsyth told The Pulse. “There isn’t anything within the Fair Work Act (FWA)…that defines what an intern is.”

It means that a claim regarding interns becomes a subjective issue, usually defined by presiding judges in court cases.

The distinction between an ‘intern’ and ‘employee’ is usually defined as whether the intern is conducting work which could reasonably be expected to be carried out by a remunerated employee, but it remains a grey area.

The closest the law comes to defining something like an intern is the traditional vocational placement.

Forsyth said claims of exploiting an internship arrangement usually arise with an expectation of employment which doesn’t eventuate – usually after a multi-month stint with little to no remuneration offered.

“There’s no guidance in the FWA about what occurs in that arrangement,” said Forsyth.

“There’s a significant risk when any employer engages people in an internship program – if they’re not paying them, they may be breaching the FWA.”

The risk isn’t just centred on organisations anymore, but has expanded to third parties.

It goes beyond the organisation

Forsyth highlighted the case of EZ Accounting as an example of the Fair Work Ombusdman widening actions to include third party individuals and organisations.

“Something that’s extremely common now in proceedings…is to try to slot directors or other employees such as managers, HR officers, even third parties such as accountants with what’s called ‘accessorial liability’,” explained Forsyth.

“That is, the allegation is made that these other people were involved in the contravention and therefore liable for the contravention.”

READ: Why being willfully ignorant isn’t a defence

The maximum penalty for contraventions of the Fair Work Act is $54,000 for a business or corporate entity and $10,800 for an individual.

Forsyth said the targeting of individuals and third parties in cases of unlawfully hiring interns signaled an increased focus on the practice from the FWO, unions, and even employment lawyers – particularly in the startup space.

The potential for “carnage” in startup land

Forsyth said he had seen an increase in inquiries from people who had been engaged by startups to do work to help the company set up – only to be told that they wouldn’t be given an ongoing position with the company.

“In the startup space there’s a lot of this at the moment. You see ads all the time, particularly on Twitter, looking for interns,” said Forsyth.

“The ads are often very unclear as to what the person will actually be doing and how long they will be performing the role.

“I think there’s going to be carnage in that area if the FWO and unions start directing their attention into that space.”

He said a lot of startups had taken cultural cues from the US, where internship arrangements are better defined within the context of state laws.

Add to the mix an increased awareness of intern exploitation and speculation of ‘wage theft’ cases including companies such as 7/11, Dominos and even ALDI, and you have a perfect storm for an increase of actions in this area.

So what if you want to do the right thing?

How to hire interns the right way

Forsyth said entering an intern relationship in Australia was “risky” at the moment, but acknowledged that businesses with good intent could want to hire an intern to give them experience.

He said the best way for an organisation to hire an intern was through the vocational or educational space.

“See if the person is studying at a TAFE or university and see whether you can pull them in through that. That’s the best way to do it,” said Forsyth.

Apart from that, he said when entering an intern relationship it was important to spell out in black and white what the expected activities of the intern would be.

He also noted that the shorter the internship, the better.

“Make sure it’s very clearly set out in writing that it’s a short term opportunity for them to come into the workplace and observe the work that you do,” said Forsyth.