With the summer fast approaching, employers are looking to hire students for internships. The slow recovery of the Ontario economy is making unpaid internships more attractive to companies. Unpaid internships are so common that employers and students alike assume that they are legal. However, before you hire a student with the understanding that the internship will be unpaid, you should be aware that employment law legislation in Ontario has specific requirements that must be met for an unpaid internship to be considered legal.
Persons who receive training from employers as interns are generally considered to be “employees” under the Employment Standards Act, 2000 (“ESA”) and are therefore entitled to all of the same minimum work standards that typical employees are entitled to, including the right to receive at least minimum wage. However, if all six of the following conditions are met, the student is not considered an “employee” for the purposes of the ESA and therefore the employer does not have to pay the student for the internship:
1. The training that the student receives at the job is similar to the training which is given in a vocational (i.e., trade or career) school.
2. The training is for the benefit of the student.
3. The employer providing the training derives little, if any, benefit from the activity of the student while he or she is being trained.
4. The student does not displace employees of the employer.
5. The student is not accorded a right to become an employee of the employer.
6. The student is advised that he or she will receive no remuneration for the time that he or she spends in training.
The fact that the student does not negotiate for or does not expect to receive monetary compensation while he or she is being trained does not preclude a finding that he or she is an “employee” pursuant to the ESA and is therefore entitled to be paid.
A key consideration is that the intern must be trained in a skill that is used by the other employees of the company.
The case of Girex Bancorp Inc. v. Hsieh provides a good example of the application of the above factors. The employer hired two students to develop the company’s software. The students understood that this was an unpaid internship but nevertheless filed a complaint with the Ministry of Labour for unpaid wages at the end of their training term. The employer argued that the interns were not entitled to be paid because their training satisfied all of the above criteria. The Labour Relations Board disagreed and applied the six criteria as follows:
1. Similarity of training to that given in a vocational school – While the employer testified that everyday he “explained what the system was all about”, there was no evidence of any formal instruction, supervision, or evaluation provided to the interns.
2. The training is for the benefit of the individual – The training was found not to be for the interns’ benefit as it was not apparent that they received any benefit from their labours, aside from a letter of reference.
3. The person providing the training derives little benefit – The primary benefit was to be reaped by the employer, which needed the software program to be viable.
4. The interns do not displace existing employees – While it was true that the interns did not displace any employees, as the employees left the employer some time earlier, it was clear that the work that the interns had been hired to perform had initially been done by employees who were paid for their labours. However, when the money ran out, the employer turned to the interns to complete the necessary work.
5. The interns are not afforded a right to become employees after the internship is complete – The interns did not have a right to become employees. The employer advised them that they could possibly become employees, but it was not a guarantee.
6. The interns are advised that they will not be paid – The interns were advised that they were not going to be paid.
The Labour Relations Board concluded that only the latter two conditions were met. As a result, the interns were considered “employees” under the ESA and entitled to compensation. One intern was awarded $10,000 in unpaid wages and vacation pay, while the second intern was awarded $7,681.00.
The foregoing case illustrates that notwithstanding the fact that the student agrees to work for free, the student will have a legitimate claim for unpaid wages if he or she can demonstrate that at least one of the above-noted criteria has not been met. Prior to hiring the student, you need to advise him or her that they will not be paid and there is no guarantee that they will become your employees at the end of the internship. Once the student begins working for your organization, you need to closely monitor your student internship program to ensure that the six criteria are continually being satisfied.
If you would like to discuss the law governing internships before you hire summer students, please do not hesitate to contact me.
Labour and Employment Law Group