The on-going debate concerning the use of unpaid interns resurfaced last week, as the UK Employment Relations Minister, Jo Swinson, handed HM Revenue and Customs (HMRC) a list of 100 companies — including many in the fashion industry — accused of breaching national minimum wage (NMW) laws by using unpaid interns in paid roles.

The concern is that many unpaid interns are actually “workers” and, as a result, entitled to the NMW (currently GBP6.19 for workers aged 21 and over). If the placement becomes more than a voluntary learning activity, NMW will generally be payable — even if an individual is labelled as an “intern” or working under an internship agreement.  You’ll have to look at the actual arrangements in place.  An intern will likely be regarded as a worker if he/she is:

  • under an obligation to personally perform activities in accordance with the company’s instructions;
  • is subject to a high degree of control exercised by the company; and/or
  • there is mutuality of obligations between the company and the intern (i.e. to provide work and to accept work).

The government is taking active steps to stop companies abusing NMW requirements. Proposed measures include: launching a social media campaign; publishing student hand-outs to inform graduates of their employment rights; publishing guidance on the NMW for employers who offer internships; consolidating the existing 17 (!!) sets of NMW regulations into one single set; and fast-tracking calls made to the Pay and Work Rights Helpline regarding unpaid internship abuse.

Companies failing to pay the NMW to interns who are in fact workers could be liable to pay them up to six years’ backdated NMW and a penalty of 50% of the total underpayment of the NMW (up to a maximum of GBP5k). In serious cases, the company and its directors may also face criminal liability. The government also has the power to name and shame companies that breach the NMW laws, which puts a brand’s reputation at risk.

As a result, we have already seen a number of house-hold names (including Harrods, Arcadia and NOW Magazine) settle claims for payment of the NMW with unpaid interns in the UK.

The unpaid intern debate is also a hot topic in the US. Charlie Rose reportedly paid USD250k to 190 former interns to settle a class-action lawsuit over unpaid wages. Former interns of Fox and Hearst (the publisher of Harper’s Bazaar) are also pursuing ongoing lawsuits for unpaid wages. Many companies in the US (including Conde Nast) are now taking proactive steps to reform their internship programmes.

With the UK government and US courts cracking down on the illegal use of unpaid interns — and given the widespread use of interns in the fashion industry — brands offering unpaid internships should review their policies to make sure that they are complying with the NMW obligations and other employment laws.