Following the recent decision of the Supreme Court in Autoclenz [2011] UKSC 41[1] it is clear that a tribunal will determine an individual's employment status by examining the reality of the parties' relationship.
What effect will this have on internships?
What are internships?
Internships are periods of work experience offered by an employer to individuals (otherwise known as interns) who wish to gain relevant knowledge and skills prior to commencing work in a particular career. They provide an invaluable opportunity for prospective employees to gain 'on-the-job' experience and insight into an industry, whilst boosting their CV's and employability in a challenging market. But are the benefits as appealing to employers?
There is no doubt that internships provide employers with cheap (and often free) labour for tedious tasks such as filing and photocopying. However, it also allows employers to assess the interns and ensure that the best possible candidates are selected from the widest available pool to join their field. A recent survey conducted by Graduate Advantage revealed that 81% of interns are now employed and a striking 33% of those are still working with their internship organisation. With benefits such as these in mind, it is hard to see why an employer would want to scrap their internship programs.
Are interns really a source of free labour?
There is no legal definition of an 'intern' and as a result the answer to whether or not they should be paid varies depending on the circumstances. In most cases interns will fall within the definition of a 'worker' where there is an expectation that work will be carried out personally for the organisation concerned. Where an intern is a 'worker' the intern will automatically gain certain legal rights. For example, the interns are likely to be entitled to the national minimum wage (currently at £5.93 per hour for workers over the age of 21).
The Supreme Court recently confirmed in the Autoclenz case that a tribunal should determine an individual's worker or employment status by examining the reality of the parties' relationship rather than the terms of any contract that may govern their relationship where those terms do not reflect the parties' intentions. Therefore if an intern is doing work for a company then they must be paid for it, it's that simple.
Can employers get away without paying interns?
A worryingly large number of employers are still incorrectly assuming that as long as the intern understands that the work experience is to be voluntary then they can escape the requirement to pay them at least the minimum wage. Only charities, voluntary organisations and statutory bodies are able to employ unpaid voluntary workers – private companies cannot do this unless the interns are genuinely ‘work shadowing’ or just being trained.
This misunderstanding among employers can leave them exposed to claims for back-dated pay for up to six years from both current and former interns. Employers may also be liable for paid holiday and rest breaks. Many unions are actively encouraging unpaid interns to seek legal support; the National Union of Journalists has a web link on their homepage which advises interns on how to bring a claim for unpaid wages.
Of even more concern is that once an individual is classed as a worker, depending on the nature of the relationship between them and the organisation, there is a risk that an intern could claim that they are an 'employee'. These interns will then be entitled to enhanced rights such as unfair dismissal rights, redundancy, maternity and sick pay. This is a real concern for employers who hired an intern assuming that they are not entitled to any pay and mistakenly consider that they do not have the ability to bring any employment claims.
An intern could be classed as an 'employee' if there is:
- a requirement for personal service from the intern;
- a degree of control exercised by the organisation; and
- mutuality of obligation.
Calls for a ‘training wage’
The Chartered Institute of Personnel and Development (CIPD) produced a report last year, ’Interns: To Pay or Not to Pay’, calling for the introduction of a ‘training wage’ after its research showed that 37% of interns are unpaid. The CIPD contends that the training wage, proposed at £2.50 an hour, would reflect the contribution that an intern is likely to make to an organisation, as well as promote social mobility by encouraging people from poorer backgrounds who cannot afford to work for free, to apply for such roles.
The government also recently issued a strategy document, 'Opening Doors, Breaking Barriers' in which Nick Clegg stated that he will aim to tackle unfairness at every stage of life with specific measures to improve social mobility from the school years to adulthood. However, to date there has been no indication as to whether a training wage or a much needed legal definition of the term 'intern' will be introduced.
What do the Tribunals say?
In Nicola Vetta v London Dreams Motion pictures Ltd [2009], an employment tribunal found that an intern, who had agreed to only receive expenses from the outset, was in fact a worker and so was entitled to the minimum wage for the entire period of her internship.
In the recent case of Hudson v TGP Web Publishing Ltd [2011] an intern was awarded damages for unpaid wages and holiday despite the advert for the internship communicating that the position was to be unpaid. The Tribunal emphasised in the judgment that a crucial factor of its decision was the actual role that was being performed by the intern. In this case it was clear that Miss Hudson was not just work shadowing but actually working; she was managing six other interns, delegating tasks and hiring new interns.
These decisions are not surprising and will most certainly be welcomed by the CIPD and unions fighting for the fair treatment of interns. Nevertheless, it is important to remember that these decisions are only from the Tribunal and, although they are persuasive, they are not binding on other tribunals hearing similar cases.
Internships: a thing of the past?
Many employers are ignorant of the reality that the vast majority of interns should be paid. Some may be accused of exploiting those who are willing and able to work for free to get their foot on the first rung of the career ladder.
With youth unemployment rising, employers can pick and choose their interns with little incentive to pay them. However, employers must be alive to the fact that even if there is no formal contract in place, or if their title is described as 'work experience' or 'intern' or 'voluntary' it still does not allow them to escape the law.
In a climate where there is constant pressure to save costs wherever possible there is a risk that employers may become reluctant to maintain internships in the fear that the intern could have employment rights – claims arising from which businesses just cannot afford.
City law firm, SJ Berwin, admitted last month that the firm "got it wrong" when a paid summer vacation scheme student was asked to work until the early hours of the morning on a document for an international arbitration. Although the student willingly stayed late it is likely that she felt obliged to stay to impress the firm. Employers may therefore be hesitant to take on interns, even if they are paid, because they feel the need to tiptoe around them.
There is no denying that in theory the benefits of an internship should be beneficial for both the intern and the employer. However, until the government finally introduces a much needed legal definition of an 'intern', confusion and exploitation is likely to remain. Ultimately, the misunderstanding on this subject may lead to internships becoming a thing of the past.
[1] 'Supreme Court judgement clarifies the need for contractual terms to reflect the reality of the working relationship' in The People Bulletin, 4 August 2011