In May 2016, The Federal Circuit Court has imposed a $272,850 penalty against a Sydney-based media company AIMG BQ Pty Ltd to send it a “serious message” not to disguise employment relationships as unpaid internships. The Court has handed down the penalty against the company following an investigation and legal action by the Fair Work Ombudsman. Judge Tom Altobelli also penalised company director $8,160 over his failure to comply with a Notice to Produce documents for Fair Work inspectors. Further, the Judge imposed a three-year injunction restraining the director from contravening workplace laws. AIMG BQ admitted in Court that it underpaid two event co-ordinators a total of $18,767 between October 2013 and June 2014. AIMG BQ required the student to do an ‘internship’ of 180 hours of productive work over a period of four months, with duties ranging from administration and office cleaning to event organising and magazine editing - before it started paying her wages. It was unlawful for the internship to be unpaid because the student was performing productive work that was not a formal part of her studies. After the internship period, AIMG BQ paid the student an unlawfully low flat rate of $50 a day, or just $6.56 an hour. In total, the student was underpaid $8,387. When is an internship legal? Internships and work experience placements are not unusual, and are an important experience for young people seeking exposure to the industries in which they wish to be employed. These arrangements are legal, and minimum wage requirements will not apply, as long as: the arrangement is a vocational placement required as part of an education or training course provided by an approved institution; or the person is not in an employment relationship with the host company. While each case will be different, whether an internship is actually an employment relationship will depend on a number of factors, including: whether the intern is doing productive work or just observing; how long the arrangement continues for; whether the work performed by the intern is similar to work performed by other paid employees; whether the work performed by the intern is work that the organisation needs to be done; whether the intern is required to come to the workplace for certain days and hours, as required by the organisation, or if they can nominate their own hours; and whether the intern is doing work that generates income for the organisation. Lessons for Employers Internships and unpaid work experience arrangements are a good way for employers to attract potential future hires and provide valuable industry exposure for young people. However, employers must take care to avoid creating an employment relationship. Employers should: ensure that any vocational placements are arranged through an approved institution such as a TAFE or University; limit the period of any unpaid internships to no more than a few weeks full time (or equivalent part time period); appropriately limit the kind of work that interns are permitted to perform – their tasks should be primarily of the “watch and learn” variety; and ensure that appropriate policies are in place detailing how interns should be treated. Generally, the unpaid work experience placement or internship is less likely to be classified as employment if they mainly benefit the intern, if the duration of the placement or experience is relatively short and if the intern is not expected or required to complete productive work. This particular case highlights the importance of using an intern agreement. As set out in this article, the consequences of getting it wrong can cause significant financial and reputational damage. H & H Lawyers can assist you with the classification of workers and the preparation of suitable documentation to mitigate any risks associated with engaging non-employee workers, including unpaid interns.