UK: The Rights And Wrongs Of Interns – An Employer’s Guide

With youth unemployment at an all time high, there is an over availability of school leavers and graduates looking to secure workplace experience and many of them are willing to work for free.

Recent figures suggest that there are a quarter of a million interns working in Britain one in five of whom is unpaid. Unpaid internships are controversial and are increasingly in the media spotlight. A number of high-profile exposés on unpaid internships have led to negative publicity for the organisations involved. For example, it was recently reported that an intern reached a £4,600 settlement with Sony after bringing a claim for unpaid wages, Dame Vivienne Westwood was criticised for advertising five unpaid full-time internships at her fashion house, and the retail group Arcadia made retrospective payments worth hundreds of pounds to former unpaid interns following pressure from HM Revenue & Customs (HMRC).

However, the employment status of interns is not always clear cut. There is no legal definition of the term 'intern' and it is largely up to employers to correctly determine the employment status of their interns. The employment status of an individual (ie employee, worker or self-employed) is significant because it determines the extent of his or her statutory rights. Certain legal rights only apply if an individual is an employee, for example the right not to be unfairly dismissed. Employers who fail to properly categorise their interns expose themselves to legal, reputational and financial risk.

The Department for Business, Innovation & Skills (BIS) has published guidance on the national minimum wage for organisations who offer work experience, including placements and internships. The guidance contains advice on categorising interns for the purposes of the national minimum wage legislation. With work experience opportunities under the spotlight as part of the recent Work Experience Week 2013, we consider in this briefing the employment status and rights of interns, and the implications for organisations taking them on.

WHAT EMPLOYMENT RIGHTS DO INTERNS HAVE?

Internships are typically non-contractual work experience placements lasting for a period of around three months, during which time interns have an opportunity to gain valuable experience of a working environment. Internships are often advertised on a voluntary basis. Volunteers typically have no contractual relationship with an organisation and are free to come and go as they please with no obligation to provide work or perform it and no right to receive any wage or remuneration for the work they do besides having their expenses reimbursed.

Internships are traditionally limited to work shadowing but given the ever-increasing pressure on resources, interns are now frequently being used to perform work that might otherwise have been done by paid employees, for example particular tasks, projects or departing employees' roles. In these circumstances and on a strict legal analysis, interns may more properly be regarded as workers rather than volunteers and therefore be entitled to additional statutory rights. In particular, interns are unlikely to be volunteers if they are required to turn up and to provide work, or if they have agreed to work a minimum number of hours or a regular pattern of hours.

A worker is defined as an individual who has entered into or works under a contract of employment or any other contract, whether express or implied, under which he undertakes to do or perform personally work or services for another party to the contract who is not a client or customer. Thus, this definition would exclude genuinely self-employed consultants in business on their own account.

In order to establish worker status, interns must show that they have a legally binding contract (either oral or in writing) with an organisation. They must also show that they are providing a personal service and that there is mutuality of obligation.

Personal service means that workers are required to provide their own work or skill in the performance of services for the employer in return for a wage or remuneration.

Mutuality of obligation is the obligation on the employer to provide work and the obligation on the individual to accept that work. For example, an ability to refuse tasks and choose to work only at certain times will not be indicative of worker status.

NATIONAL MINIMUM WAGE (NMW)

The main criterion for entitlement to the NMW is that the person concerned is a worker. If an intern is regarded as a worker, he or she will qualify for the NMW unless a specific exemption applies. The NMW is currently £5.03 per hour for those aged 18-20 and £6.31 per hour for those aged 21 and over.

Certain work experience and volunteering activities can be legitimately unpaid because of an exemption within the NMW legislation for 'voluntary workers' so that someone who is a worker and employed by a charity, a voluntary organisation, an associated fund-raising body or statutory body will not be entitled to the NMW as long as he or she receives no monetary payments except in respect of expenses actually (or reasonably estimated as likely to be) incurred and no benefits in kind other than the provision of such subsistence or of such accommodation as is reasonable in the circumstances.

Other important exemptions are students working as a required part of a UK-based further or higher education course if their placement does not exceed one year and individuals undertaking work experience who are of compulsory school age.

However, if an individual is not a genuine volunteer and is not exempt, then he or she must be paid the NMW. Failure to do so could result in costly enforcement action being taken against the employer, along with the possibility of unwelcome and damaging publicity.

OTHER STATUTORY PROTECTIONS

Workers are covered by the Equality Act 2010 (EqA 2010) which protects them from discrimination, harassment and victimisation in the workplace.

Volunteers are not, however, covered by the EqA 2010 and this was confirmed by the Supreme Court decision in X v Mid Sussex Citizens Advice Bureau. The Court held that an unpaid volunteer adviser for the Citizens Advice Bureau was not covered by the Disability Discrimination Act 1995 (the relevant legislation in force at the time) as she was not in 'employment'. Although the decision concerned the old disability discrimination law, the Court's conclusions apply equally under the EqA 2010.

One of the Supreme Court judges, Lord Mance, did, however, specifically envisage that interns may be entitled to wider protection (other than as service users) under article 3(1)(b) of the Equal Treatment Framework Directive which provides for equal treatment in accessing vocational training including practical work experience, although this has yet to be tested in the courts.

There is also an argument that interns may be protected by the EqA 2010 as service users of employment service-providers. Employment service includes the provision of 'vocational training' which could include training for employment or work experience.

Given the uncertainty over interns' status, prudent employers should make sure that interns are protected from work-related discrimination, harassment and victimisation and have in place clear policies and procedures for dealing with any complaints.

The Working Time Regulations 1998 (WTR) apply to workers but again, not to volunteers. The WTR include the right to receive 28 days' holiday per year including bank holidays (pro-rated as appropriate for part-time workers). Again, employers should aim to comply with the WTR as far as possible in respect of interns, particularly where they may have acquired worker status.

In particular, employers should monitor and record all hours worked by interns, and also ask for details of any work done for any other employer. Employers should ensure that interns take regular rest breaks.

HOW CAN I AVOID DISPUTES?

Employers should aim to properly categorise their interns as either volunteers or workers, depending on the nature of their role, from the outset of the relationship. As set out above, the status of an intern is not clear cut and the label is unlikely to be determinative. It will therefore be important to make sure that regardless of how an intern is categorised, he or she is treated with the same duty of care as an employee. Employers should have in place clear procedures for dealing with any problems and/or grievances which may arise during an internship and it may be appropriate to identify individual line managers who can be a first point of contact for any questions or concerns.

As set out above, employers should comply, as far as possible, with the requirements of the EqA 2010 and the WTR.

WHAT ARE THE RISKS OF NOT PAYING YOUR INTERNS?

The reputational risk of advertising for and/or taking on an unpaid intern without careful consideration as to the terms is clear. However, employers also face financial risks, as well as the possibility of criminal sanctions.

Enforcement action can be initiated by interns and/or HMRC. HMRC enforcement officers can issue notices of underpayment, ordering employers to pay backdated NMW and a penalty of 50% of the total underpayment. HMRC will also shortly be carrying out targeted checks in sectors where internships are commonplace.

Various criminal offences also exist including refusing/failing to pay an underpayment notice, keeping false records, obstructing an enforcement officer, refusing to answer questions and providing false information to an enforcement officer.

Employers should be aware that the government has discouraged the use of full-time unpaid internships and is urging employers to pay interns irrespective of whether they qualify for the NMW. This will not always be appropriate although CIPD guidance in this area suggests that there is a strong case for paying interns a bursary or salary due to the contribution they make and that as a bare minimum, employers should cover any work-related expenses incurred by their interns.

DOES AN INTERN NEED A WRITTEN CONTRACT?

There is no legal obligation on employers to have an internship agreement but they are useful for the purpose of clarifying the intentions and expectations of both parties, particularly if it is intended that the intern will have volunteer, rather than worker status.

Internship agreements are generally short, informal in style and phrased in terms of reasonable expectations rather than obligations and may include information about the role, induction and training, learning objectives, supervision and support, expenses, insurance, and health and safety.

Where employers intend to categorise their interns as volunteers, it would also be helpful to include a short statement to evidence the parties' intention that the agreement is neither legally binding nor gives rise to an employment relationship. Employers should be aware that the tribunals can always look behind any formal arrangements to determine the true relationship between the parties and, as set out above, the label attached to such arrangements is not always determinative.

WATCH THIS SPACE...

BIS has recently announced the launch of guidance which will offer interns information and support about their pay rights through videos and posters which will be available online and through social media. The guidance has been produced in collaboration with 4Talent, Channel 4's in-house scheme

internships and apprenticeships for young people looking for a career in the creative industries. David Cameron has announced his backing for the campaign although neither he nor the Deputy Prime Minister, Nick Clegg, believe that the advertising of unpaid internships should be banned. It was recently reported that Mr Clegg had rejected a request by several large recruitment agencies, including Monster and Total Jobs, for the introduction of legislation prohibiting the advertising of unpaid internships because of concerns that this would create a 'black market' in internships. Prior to this, the Internships (Advertising and Regulation) Bill 2012-13 was introduced to Parliament last year on 6 December 2012 but failed to complete its passage through Parliament before the end of the session. The main aims of the Bill were to prohibit the advertising of long-term unpaid internships and to regulate conditions of employment for paid internships and it was expected that the Bill would go some way to address uncertainties in this area.

The recent introduction of 'traineeships' which are aimed at supporting young people to get 'work-ready' may prove an attractive option for employers as an alternative to internships. They have initially been introduced for 16 to 23 year olds (and young people with learning difficulty assessments up to academic age 25). Traineeships fall under the specific exemption to the NMW legislation for young people undertaking education and training. For more information on traineeships, see our recent briefing 'Traineeships – a recent addition to the apprenticeship family'.

Over the other side of the Atlantic, there is also growing support for the recognition of interns' legal rights. For example, on 15 October 2013, New York state legislators introduced a bill designed to extend the protections of the state anti-discrimination laws to interns. The proposed legislation would make it illegal to discriminate against or harass interns on the basis of factors including gender, race, age, sexual orientation, disability, marital status, military status, and other factors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.