Disguised Employment in Internships: Can Interns Sue?

Disguised Employment in Internships: Can Interns Sue?

University graduates and learning students often pursue short-term practical experiences to bridge the gap between the academic learning and the realities of the job market. Internships serve as a preparedness against market insecurities. Many educational programs mandate students to gain practical work experience as the part of their learning ranging from short-term placements for secondary students to internships for vocational and university students. This reflects the growing emphasis on Work-Based or Work Integrated Learning, which integrates students with real work environments.

According to International Labor Organization, an internship is any arrangement to work within a business or organization, to gain experience, skills, and contacts to support future employment.[1]  However, when they deviate from this “educational purpose” serious labor concerns, about disguised employment arise. Consider a scenario where a fresh graduate or non-graduate works full-time as an intern, manages client data, and reports to supervisors, yet receives no compensation. Is this an educational opportunity or labor exploitation? While the firms are not obliged to treat all interns as an employee, the use of interns for roles that resemble regular employment without fair remuneration could raise significant legal and ethical questions.

An internship is considered to be paid or compensated when the intern receives financial remuneration, in the form of a wage or stipend. Employers tend to offer stipends, covering transportation costs, or providing other forms of compensation that are feasible. By offering even limited forms of compensation, even if it’s not in the form of a traditional salary, employers demonstrate a recognition of intern’s works and time. In contrast, unpaid internships are generally considered lawful only when the primary beneficiary is the intern not the employer.

As pointed out by The International Labor Conference (2012) with internships and other work experience schemes: internships are considered the efficient means to obtain decent work in future, but they could also be misused to access cheap labor or replacing the existing workers.[2] The International Labor Organization’s Committee of Experts on the Application of Conventions and Recommendations (CEACR) raised similar concerns in its 2014 survey on minimum wage standards. It observed that unpaid internship programs and similar arrangements have, in several countries, been misused to evade minimum wage obligations as a cheap labor and reduce genuine employment opportunities.[3] This situation where an intern is not formally recognized as an employee but performs the activities and undertakes responsibilities similar to the regular staff is legally termed as “disguised employment”.  A disguised employment relationship occurs when the employer treats an individual as other than an employee in a manner that hides his or her true legal status as an employee.[4]

Nepalese Context

In the absence of specific legal definition of internships under Nepalese Law, Section 16 of the Labor Act, 2074, may be cautiously interpreted in alignment with ILO’s classification of internships.  Section 16 of the Labor Act acknowledges trainees and apprentices, particularly those tied to the approved curriculum of an educational institute. It doesn’t explicitly mention about the term “internship” but taking the reference of ILO Working Paper, 240 on employment law, internships can be categorized into two types: those integrated with formal educational programs and conducted under formal agreements with recognized educational institutions and open-market internships. In this regard, Section 16 may be understood to apply to situations where the internship is linked to an educational purpose and conducted under a formal agreement with an educational institute. They are generally not considered regular workers, but they still enjoy basic protections like limits on working hours and safe working conditions.

However, under Section 16(2) provisory clause, if an apprentice is made to work outside the scope of approved curriculum, the law treats them as regular employee. Reading this provision in alignment of Section 10(2) of labor act, if there arises a question as to whether any employment is regular or not, it is determined on the basis of nature of work. In that case, if an intern is disguised in the form of employee, s/he gets the protection which an employee entertains. The right to sue under Nepalese labor act, is impliedly protected, for interns, when they are disguised in the form of regular employment. The law is still silent when the student takes internships voluntarily (open-market internships) which lacks agreement under Section 16 of labor act. Nevertheless, when an intern find himself/herself in the position of being exploited, based on the nature of work they may claim the status of regular employee before labor office. Under Section 163(2)(c) of Labor Act, labor office may impose a fine of ten thousand rupees per apprentice or trainee on an employer who engages any person as an apprentice or trainee in contravention of the Act. Additionally, it may issue an order to employ such an apprentice or trainee on regular employment and to pay the remuneration and benefits accordingly.

Foreign practice: The ‘Intern or Employee’ Legal Test

When an intern seeks to challenge their status and claim employment rights, foreign courts and legal authorities often turn to specific tests to assess whether the intern was, in fact, an employee in disguise. In the United States, the wage and hour department of labor (DoL), under Fair Labor Standard Act (FLSA), has established a six-factor test to determine this. According to the test, an intern is not considered an employee only if: (1) the internship is similar to the training given in an educational environment, (2) the experience is for the intern’s benefit; (3) the intern does not displace regular staff; (4) the employer derives no immediate advantage from the training, (5) the intern does not automatically get a job at the end, (6) both parties understand there is no entitlement to wages. Only if, all six of conditions satisfy, the intern is regarded as a trainee; otherwise, they are considered as an employee.

The court of U.S. in the landmark case of Glatt v. Fox Searchlight Pictures, Inc. (2015) looked at who is the primary beneficiary meaning who benefits more from the internship. [5] Under this test, an employment relationship is created when the “tangible and intangible benefits provided to the intern” are less “than the intern’s contribution to the employer’s operation.” The test, by the court’s estimation, has two central features: First, it focuses on what the intern obtained in exchange for his or her work. Second, it examines the “economic reality” between the two parties. directed at the extent to which the internship is structured to promote the intern’s education. When an employer uses intern to benefit his/her own business, that is considered exploitative. The federal court of Australia had fined Crocmedia Private limited for underpaying two university students and emphasized that profiting from interns is not an acceptable conduct.[6] Non-paying, underpaying, making intern work as an employee has thus been the subject matter of legal dispute.

Specific Practices of Internships

In Argentina, it requires there to be both an agreement between the host organization and the educational institution, and a separate internship agreement between the student and the host.[7] Student interns must be paid an allowance that is calculated as a proportion either of the basic wage established by an applicable collective agreement for employees, or of the minimum wage. Brazil has adopted broadly similar legislation, in the form of the Lei do Estágio (Law No 11,788 of 2008). Rather than requiring two agreements, a tripartite commitment must be entered into by the intern, the educational institution and the host organization. What Romania has also done is introduce legislation that regulates other types of internships as well. Under Article 31(5) of Romania’s Labor Code, all higher education graduates are deemed to be interns or probationers during the first six months from the commencement of their first regular assignment (employment) in the profession they have chosen. During the internship period, the intern enjoys all rights and duties provided for under labor legislation, the collective labor agreement applicable to the employer, and the individual employment contract. Article 23 of Romanian Labor Code confers a number of important rights on the intern, including:  to receive support from their mentor; to be given a programme of activities that corresponds to their position and grows in difficulty and complexity over the period of the internship; to be given the time and information needed to improve their skills and to be assessed objectively.

In many countries, internships are either explicitly included or excluded from the scope of labor laws. In the places where internships are not directly covered by labor codes, alternative mechanisms have emerged to regulate how internships should be conducted. They are strategic enforcement by labor authorities, the use of soft laws such as code of practices, policy directives or official guidelines. While some enterprises in Nepal have introduced internal guidelines to regulate internships, these should be uniform and address how to resolve cases of disguised employment. For these reasons, it is imperative for Nepal to adopt a clear robust legal and policy framework, referencing from international practices to ensure that interns are not exploited for opportunity.

 

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[1] Stewart, Andrew, Rosemary Owens, Anne Hewitt, and Irene Nikoloudakis. 2018. The Regulation of Internships: A Comparative Study. ILO Working Paper No. 240. Geneva: International Labour Organization.

[2] International Labour Conference, “The Youth Employment Crisis: A Call for Action,” Resolution and Conclusions of the 101st Session of the International Labour Conference (Geneva: International Labour Office, 2012).

[3] Committee of Experts on the Application of Conventions and Recommendations. (2014). General survey concerning the minimum wage fixing convention, 1970 (No. 131), and the minimum wage fixing recommendation, 1970 (No. 135).

[4] International Labor Organization. (2006). Employment Relationship Recommendation, 2006 (No. 198).

[5] Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528 (2d Cir. 2015).

[6] Fair Work Ombudsman v Crocmedia Pty Ltd [2015] FCCA 140

[7] Argentina. Law No. 26,427 on the Creation of the Educational Internship System within the Framework of the National Education System. Official Gazette of the Argentine Republic, 15 Jan. 2009.