A recent Employment Relations Authority consent determination involving Arise Church has confirmed that four unpaid interns were actually employees and were therefore owed minimum entitlements under employment legislation. This outcome has brought the familiar issues around unpaid internships back into the public eye. Are unpaid internships legal, and if so, how do they work? This article highlights some of the issues to consider.
The legal basis of unpaid work
Unpaid internships are not a specified legal category in New Zealand. The only legal classification for a worker who does not receive a payment or benefit for work done is as a volunteer. Under s 6(1)(c) of the Employment Relations Act 2000 (ERA), a volunteer is a worker who does not expect to be rewarded for work performed, and receives no such reward. This means that they are excluded from the definition of ‘employee’ and therefore are not owed the same obligations.
An internship agreement between a worker and a business or organisation can be a volunteer arrangement if it meets both criteria, i.e. the intern agrees to work for a period of time for no reward, and receives no reward. The same reasoning is often relied on for unpaid work trials, where a prospective employee is asked to work a ‘trial shift’ for no pay so that the business can determine whether they are suitable for the role. As discussed below, this is riskier than many employers may assume.
Many degrees and qualifications require hours of work experience, often unpaid. This is common in programmes such as nursing, veterinary science, and medicine. This is generally legal as a volunteer arrangement, as the student is not working for (or expecting) reward from the host organisation, and the work experience and qualification that the student is receiving is instead the main benefit of the arrangement. That said, a placement can still cross the line if the student is, in reality, being used for unpaid labour outside the scope of their course. In essence, this is what occurred at Arise.
What happened at Arise Church?
Arise Church ran an unpaid internship programme for students undertaking the practical component of a formal programme of study (a certificate/diploma in Christian ministries). That arrangement did not, in itself, create an employment relationship. However, following an investigation that began in 2022, the Labour Inspectorate found that the four interns had been misclassified, and that the megachurch had created an employment relationship through the way the programme was run in practice. The determination does not go into detail, but former interns have approached the press, reporting that they worked up to 50-hour weeks, and in some instances were directed to do work outside the scope of the internship, such as yard work.
Arise accepted that the way it implemented parts of its internship programme at the relevant time meant the four interns were in fact employees, and that breaches of minimum employment standards had occurred. The megachurch has agreed to pay $173,869.56 in wage arrears to the four former interns.
Why the ‘volunteer’ label can be risky
The Arise outcome shows that relying on the ‘volunteer’ classification to justify unpaid internships can be fraught for several reasons.
Volunteers cannot expect, or receive, any kind of reward. Both limbs of this test have been interpreted broadly. In Salad Bowl Ltd v Howe-Thornley, the Employment Court found that a reward could include non-monetary recognition of services (in that case, a free lunch at the end of a trial shift). The Court also found that the employee in that case expected to be paid for her trial, even though payment had never been discussed. She was ultimately held to be an employee from the start of the trial.
If an intern receives, or expects to receive, some kind of benefit from the internship, whether monetary or otherwise, they are unlikely to be a volunteer. The benefit need not be large (although the Court has noted that not every trivial benefit will count), and that there must be a causal connection between the reward and the work done.
The Authority and the courts are also increasingly finding that if the business, rather than the volunteer or intern, is the main beneficiary of the work, the arrangement is unlikely to be a genuine volunteer arrangement. A 2019 Authority determination, Brahmbhatt v Kohli, found that an unpaid intern had completed the work of a normal employee at a call centre. Her work was integral to the business and of economic benefit to it, rather than being any genuine form of ‘work experience’ that might be done without expectation or provision of reward. She was therefore found to be an employee outright, and entitled to receive the minimum statutory entitlements such as minimum wage and holiday pay.
Even if the intern and business agree that the intern is not working for hire or reward, an employment relationship may still be found if the “real nature of the relationship between them” is one of employment, as was the case in the Arise Church situation. This is the legal test in determining whether a worker is an employee, as set out in s 6(2) and (3) of the ERA. The Labour Inspectorate’s guidelines list the following factors, drawn from case law, that point towards a worker not being a volunteer, and potentially being an employee:
- the worker is given some kind of benefit for their work, such as free accommodation or food;
- the worker expected to be rewarded for their work;
- there is an economic gain to the business from the work performed by the worker;
- the work is integral to the business and it is work an employee would normally perform; or
- the worker’s hours of work are controlled.
No single factor is necessarily determinative of an employment relationship. Rather, the more of these factors that are present, the greater the likelihood of employment. Some of these factors may carry less weight where the organisation is a genuine charity or not-for-profit. However, as Arise shows, charitable or religious status is no shield.
What are the key take aways from this?
If the Authority or Labour Inspectorate finds that a business or organisation is misclassifying employees as volunteers, the financial consequences can be significant (as they were for Arise). There is also the risk of a personal grievance if the ‘internship’ is brought to an end, and the person then claims that they were an employee. Businesses and organisations should be careful when offering unpaid internships or unpaid work trials. It is not enough to simply call someone an intern or volunteer, or have them sign a volunteer agreement. It is important that the internship or trial continues to meet the requirements for the person to be considered a volunteer. At no point should the worker expect, or be given, any kind of reward, monetary or otherwise.
When using an unpaid internship or pre-employment trial, a business or organisation should ensure that any work done is not done for its economic benefit, but rather to assess skills during a job interview, or for some other appropriate reason which will justify the arrangement being unpaid. For example, a café conducting a work assessment as part of an interview process could perhaps ask a job applicant to make a few coffees to assess their ability to use the machine, but those coffees should not be sold to a customer. For unpaid placements linked to a course of study, the host organisation should make sure the work stays within the scope of the placement and the course requirements. Anything beyond this may suggest that the worker is doing the work of an employee rather than being a true volunteer.
If you have any questions, please get in touch with our Employment Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
