A Sydney-based fashion industry start-up and its sole director have been ordered to pay over $300,000 in penalties for underpaying three workers more than $40,000, including engaging one worker as an unpaid intern when she was, in fact, a part-time employee. The Federal Circuit Court decision highlights the significant legal, financial and reputational risks associated with incorrectly classifying workers and engaging “unpaid interns”.
Background
In Fair Work Ombudsman v Her Fashion Box Pty Ltd [2019] FCCA 425 the Fair Work Ombudsman (FWO) commenced legal proceedings against Her Fashion Box Pty Ltd (HFB) and its sole director, Kathleen Purkis, (Ms Purkis), for pecuniary penalties due to 19 contraventions of the Fair Work Act 2009 (Cth) (FW Act). Ms Purkis was the sole director and majority shareholder of HFB, and was responsible for the overall direction, management and control of the Business.
The FWO submitted that HFB and Ms Purkis underpaid three employees their minimum Award entitlements, including one graphic designer who was engaged on the basis of an ‘unpaid internship’.
Ms Va, the ‘intern’, had already completed university and was working at HFB for 2 days per week for 6 months. Ms Va was employed from July 2014 to December 2014 and then again in January 2015. During the engagement, Ms Va:
- created and updated the HFB’s website, banners, layouts for videos on HFB’s youtube channel, electronic newsletters, layouts of HFB’s business magazine; and
- packed HFB’s boxes.
While the FWO had recovered some of the underpayment amounts from HFB and back paid the employees, it commenced legal proceedings after a lack of co-operation by HFB with FWO inspectors. FWO also sought court orders requiring HFB and Ms Purkis back-pay the employees in full (as they were only partially back-paid prior to the proceeding).
Judgment
The Federal Circuit Court found that there were significant contraventions of the FW Act by underpaying the workers, and found that Ms Va was actually an employee who should have received minimum wage entitlements. The court ordered HFB and Ms Purkis pay pecuniary penalties of $329,133 for these contraventions of provisions of the FW Act.
Unpaid internships under the Fair Work Act
The case highlights that organisations cannot avoid paying lawful entitlements to their employees simply by labelling them as interns.
Unpaid placements are lawful where they are part of a vocational placement related to a course of study. However, it is unlawful to exploit workers when they are fulfilling the role of an actual employee. Business operators who try to exploit workers as a source of free labour risk facing enforcement action from the Fair Work Ombudsman.
Tips to determine whether someone is an employee or intern
- The reason for the arrangement:
If the purpose of the internship is to provide the person with work experience formally connected to education or training (e.g. through university or TAFE), or a program of training legally required to enter a profession, it is less likely to be an employment relationship. If the work involved is more productive (i.e. not just observational, learning, training or skill development) then it is more likely to be an employment relationship.
- The length of time:
The longer the work arrangement period, the more likely the individual will be an employee.
- Whether the work is significant to the business:
If the intern is doing work normally done by a paid employee and the business requires this work to be done then the individual will more likely be an employee.
- The individual benefit:
The person doing the internship should get the main benefit from the arrangement. If the business is getting the main benefit from engaging the “intern” (i.e. charging for, or making a profit from the work completed by the intern) then the individual will more likely be an employee.
How we can help
Moores advises employers and service providers on the appropriate classification of its workers, whether they are employees, volunteers, independent contractors or interns. If you would like further assistance, please do not hesitate to contact us.