On 6 April 2023 the ERA issued a determination in the case of Associations of Professional and Executive Employees Inc and Anor v The Secretary for Education, which answered the question of whether unpaid interns were in fact employees. The answer, in this case, was yes.

What’s interesting about this case is that it involved students undertaking a practicum placement with the Ministry of Education that was required to complete their university degree programmes. The interns were paid a scholarship, by the Ministry of Education, for the 40 week period they were on placement, the terms of which required them to repay the scholarship if they did not complete the full internship.

The ERA considered the following factors in determining if the interns were undertaking “work” in accordance with s6(1)(a) of the Employment Relations Act 2000:

(a) the constraints placed on the freedom the intern would otherwise have to do as she or he pleases – The intern was found to be restrained as they were required to attend work at specific times and follow Ministry directions in undertaking the work.

(b) the nature and extent of responsibilities placed on the person – The intern was found to bare the same responsibilities as other employees, as they were undertaking work that would otherwise be undertaken by an employee of the Ministry.

(c) the benefit to the Ministry of having the intern perform the role – It was determined that there was benefit to the Ministry in having an intern perform the role, which was not the actual work undertaken, but the long term strategic benefit to the Ministry of growing potential recruits. The operational benefit of developing interns skills meant that interns were contributing to its business.

 In determining if the intern was an employee the Authority also considered:

(d) did the intern work for hire or reward? It was found that the scholarship provided to the intern, the value of the supervision, and the prospect of future employment amounted to reward.

(e) did the arrangements amount to a contract for service (employment)? After applying the all relevant matters, integration and economic reality tests, the Authority concluded that the arrangement amounted to employment.

The Authority determined that the nature of the arrangement meant an intern was undertaking work on what was effectively a fixed term basis, and therefore is entitled to be paid in accordance with the applicable Collective Agreement. They are also entitled to be paid for other minimum entitlements such as KiwiSaver, annual holiday and sick leave. The Authority confirmed that the scholarship already paid should be considered as part payment of what is due when calculating the arrears owed.

This determination has turned on its head the way that organisations have traditionally considered internships. We have historically worked under the assumption that if an internship was operating as part of a practicum requirement to achieve a qualification it was not an employment relationship. The decision has also reiterated the well-established fact that “reward” for work undertaken does not need to be monetary.

The Authority member made interesting commentary on the recent significant changes to what is considered “work”, including the change to sleep overs being considered work rather than rest, contractors being considered employees, and ‘on call’ being considered work. This decision builds on those changes, and is likely to have wide ranging impacts on how practical training is undertaken moving forward, including for education in industries such as trades, medical, teaching, legal and accounting to name a few.

While this case provides good guidance, it is important to note that this Authority determination is not precedent setting – and because of the wide reaching implications we would expect this decision to be challenged in the Employment Court, so watch this space!

If your organisations engages interns or any form of voluntary work or unpaid training, then we can assist with specific advice on how this case may impact your arrangement.