In today’s hyper competitive job market, internships are becoming a must-have on almost every job applicant’s CV. But when should a worker be paid for an internship, and is the rise of unpaid internships simply broadening the gap between those who can afford to work for free and those who can’t? We explore these and other issues in this Internships Investigated series.

There are many different types of internships and the legal rules that govern them are not entirely clear. But as a number of recent court cases show, employers are at risk of breaking the law if they use interns to do the work of paid employees.

It is common today for students or job-seekers to undertake work experience with an organisation. This may involve a short trial, to review an applicant’s suitability for paid employment. Or it may be a longer engagement, often now called an internship.

Once confined to medical graduates gaining supervised experience before being licenced to practise, the term now captures a wide range of placements with businesses, non-profit organisations and government agencies. Internships typically offer a taste of what is involved in a job or industry, plus the chance to make contacts or fill out a resumé.

In the US, interns are now estimated to represent 1.3% of the labour force, with around half of all college students completing an internship during their studies. No firm data is yet available on their prevalence in Australia. But a 2013 research report commissioned by the Fair Work Ombudsman found significant evidence of their use – and also cause for concern. A number of businesses seem to be using their interns to do work other employees are paid to do.

It is hard to take exception with the short and mostly observational programs typically undertaken by high school students, or properly supervised placements embedded in education or training courses. But it is a different matter when job-seekers are expected to work for weeks or months without wages to get a chance at a paid job.

Unpaid internships can have a damaging impact on social mobility, by excluding those who cannot afford to undertake them. But they also threaten the integrity of our labour standards – and in particular the principle of a fair day’s pay for a fair day’s work. The International Labour Organisation has warned of internships becoming a “disguised form of employment,” without necessarily the benefits they promise, such as real on the job training.

There are detailed rules in Australia for the employment of workers, set by a combination of legislation and awards made by bodies such as the Fair Work Commission. These set minimum rates for different types of work, as well as regulating hours of work, leave entitlements and termination of employment.

So when is it lawful to engage someone to undertake work experience, without complying with these rules? Generally speaking, the answer depends on whether the arrangement can be characterised as employment.

This term is not formally defined. But it has been interpreted to require some form of contract, or legally enforceable agreement, to work under the direction and control of an employer. This need not be in writing. But there must be an arrangement that a reasonable person would regard as involving mutually binding commitments – whether to work for wages, or something else.

Australia’s main labour statute, the Fair Work Act 2009, states a person is not an employee while on a vocational placement. This means an unpaid placement required by an authorised education or training course.

Hence the Act does not apply to unpaid work experience undertaken for a university or TAFE course, or a program of training legally required to enter a profession. The exclusion may also cover unpaid work undertaken under a government assistance programme – although the status of the Liberal/National Coalition’s proposed PaTH (Prepare-Trial-Hire) Program is less clear.

Where an internship is not formally connected to education or training, its legal status may be uncertain. But the Fair Work Ombudsman views an intern as an employee if they are expected to perform tasks that an organisation needs to be done, and they are not altruistically offering their services as a true “volunteer” would. If so, they must be paid the relevant minimum wage.

In accordance with that view, the Ombudsman has taken a number of businesses to court, with further actions pending. Last year, a broadcaster was fined for underpaying two university students who worked as radio producers.

The breaches were acknowledged not to be deliberate and were quickly rectified after the Ombudsman intervened. But the judge described the arrangements as “exploitative” and emphasised that “profiting from volunteers is not acceptable conduct”.

Similar views have been expressed in two recent cases, one involving three internships at a marketing firm, and the other a job-seeker who answered an advertisement for an event planner internship and had to do 180 hours of unpaid work before being given paid employment. In this second case the company and its director, who had previously been warned for purporting to engage employees as volunteers, were fined over $280,000.

In these cases, the interns’ status as employees was conceded. In future cases that issue may be contested and possibly different conclusions reached. But any organisation that relies on interns to do productive work, without a connection to an authorised education or training course, should be aware it is at serious risk of breaching Australia’s workplace laws.

This is the first article in our series Internships Investigated, you can read other articles in the series here.