Northern Exposure

Free labor or future liability? Unpaid internships in Canada also pose issues

By Julia Kennedy

With each summer comes a wave of new graduates and returning students looking for ways to gain career experience. This summer, the media spotlight has been focused on the nature of unpaid internships in the United States and Canada. They are no longer limited to the not-for-profit sector. It’s probably a good time for employers in Canada who have some sort of internship program to reassess whether what seems like free labor is actually a liability in disguise.

Most employers equal or exceed minimum wages when regular employees require on-the-job training. But when it comes to engaging people who are willing to work for free just to get experience, all thoughts of employment standards sometimes go out the window.

In Canada, each provincial, territorial, and federal government has standards for minimum wages, hours of work, overtime, and other basic employment conditions. But only a few provide express guidance on whether these standards apply to interns. Much of the employment standards legislation in Canada is ambiguous about this.

Statutes that define employees by reference to the performance of work and an entitlement to wages—such as those in Quebec, Saskatchewan, and Alberta—are of little assistance when the question is who is entitled in the first place. In the case of employers under federal jurisdiction, such as banks and broadcasters, no definition of who counts as an “employee” for minimum wage purposes is provided.

In British Columbia, on the other hand, some of this ambiguity has been alleviated by the government’s publishing of an Interpretation Guidelines Manual. Its definition of work excludes “practicums” that are performed as part of a degree program. Persons on a practicum can be unpaid; other interns must be paid.

In a couple of provinces (Prince Edward Island and New Brunswick), the minimum wage regulations apply only to persons who are paid wages. This seems to exclude unpaid workers. Elsewhere, such as in Newfoundland, Labrador, Manitoba, and Nova Scotia, employees are defined by the fact that they provide services or are under a contract of services. That approach leaves little, if any, room for employers to deny an obligation to pay interns.

In Ontario, the employment standards law provides us with detailed guidance. It’s based on the interpretation given to the 1938 U.S. Fair Labor Standards Act by the U.S. Supreme Court. Under Ontario’s Employment Standards Act, 2000, a person won’t be considered an employee during a training period where all of the following are true:

1. The training is similar to that which is given in a vocational school.
2. The training is for the benefit of the individual.
3. The person providing the training derives little, if any, benefit from the activity of the individual while he or she is being trained.
4. The individual does not displace employees of the person providing the training.
5. The individual is not accorded a right to become an employee of the person providing the training.
6. The individual is advised that he or she will receive no remuneration for the time that he or she spends in training.

Despite these criteria, in Ontario, as in the United States, the practices of interns and employers don’t necessarily match up to the requirements.

Businesses offering internships in Canada would do well to check how their program measures up. If an intern should be considered an employee, more minimum standards than just wages will apply.

Now that this topic has caught the attention of some political parties, perhaps governments will provide some further guidance to let businesses know when they can legitimately use unpaid interns. The downside is that the attention being given to the subject could lead to a rise in claims by ex-interns and investigations by government agencies of internship programs that were thought to be legitimate. Employers who want to mitigate against claims for back pay, potentially significant fines, and bad press may want to take this opportunity to ask whether they can afford not to pay their interns.