Internships and vacation schemes in the professional services sector – what do firms need to know?

Internships can often be an effective way for firms to assess prospective future employees and vice versa.  Employers can also use the additional resource when needed without adding to permanent head count. 

Indeed, some law firms have been known to charge clients for the time spent by those on a vacation scheme working on their matters.    

However, just because an intern works on a short-term basis – possibly without remuneration – doesn’t mean the legal issues can be ignored.  

Our short guide highlights five key considerations for professional services firms when looking at offering internships.

1. Employment status
2. National minimum wage
3. Immigration permissions
4. Intellectual property, data protection and confidentiality
5. Recruitment

1. Employment status

There is no legal status which applies to all interns.  They may be employees, “limb (b)” workers, or neither:  

• Although a firm is unlikely to hire an intern under written employment terms, employment contracts may be inferred from the surrounding circumstances, even if there is no written agreement.  Employment relationships feature a “mutuality of obligation” (i.e. the obligation to work in return for the obligation to pay a wage) and a significant degree of control by the firm over the individual.
• Equally, “limb (b)” workers (so-called because of the definition in section 230(3)(b) of the Employment Rights Act 1996), who have a lesser suite of employment rights than employees, do not need to have a written agreement in place.  All that is required is for the individual to undertake to personally provide work in return for pay or some other benefit in kind and the firm is not the individual’s client or customer.
• If an intern is neither an employee or worker, that individual will be a “volunteer”.  This is where work is undertaken for no financial reward or benefit, aside from reimbursement of out-of-pocket expenses.  The individual does not have to turn up for work if they do not wish to do so. It is irrelevant whether the intern performs the work for altruistic or other reasons e.g. to enhance their CV. 

It is tempting for firms to think that their internships should be characterised as volunteering arrangements, as a volunteer will not have employment rights, including – controversially – a right under the Equality Act not to be discriminated against.

However, labels are largely unpersuasive and employment tribunals have frequently found that interns who were paid expenses have, in fact, been paid reimbursement for work, and were therefore (at least) workers. Volunteer status also means the intern is not obliged to turn up for work or subject to a contractual duty to follow reasonable instructions from the firm. 

As an employee or worker, an intern will be entitled to the right not to be discriminated against, paid annual leave, and the right to be paid the national minimum wage. 

If an intern is an employee and is ultimately hired by the firm indefinitely, firms should ensure that the individual’s period of continuous employment is correctly calculated.  If there is a break in between the two roles then the period may be broken and reset to zero.  If not, the employee will have the right not to be unfairly dismissed and the right to a redundancy payment after two years following the date he was first hired as an intern. 

2. National minimum wage

If your interns do not receive monetary payment or benefits in kind (other than reimbursement for expenses) in return for work, they will not be employees or workers and there will be no entitlement to the national minimum wage (NMW). 

According to Government guidance, simple work shadowing which does not involve an intern performing any particular work will not entitle an intern to the NMW. 

However, a placement that may lead to an offer of permanent or paid work could result in the intern being deemed a “worker”, as the promise of paid work is a “benefit” for the work undertaken by the intern. 

Once an internship or work experience shades into an obligation to perform tasks in accordance with the firm’s instructions, the individual could be a worker and therefore entitled to the NMW.  Failure to pay the NMW could not only result in the firm having to make good the difference, but it may be criminally liable in some cases.    

However, there are some exclusions from the minimum wage entitlement:

• internships which are part of a further or higher education course which are of less than one year; and
• work placements by individuals who are of compulsory school age.

Documenting the relationship will be a helpful way of establishing that any intern is a genuine volunteer and outside of the scope of the NMW.  In that case, the agreement should cover matters such as the date of the placement, suggested (rather than obligatory) hours of attendance, and which work-related expenses are covered.

3. Immigration permissions

This will be required if a proposed intern is subject to immigration control.   For those who do not already hold immigration permission which enables them to take up the internship, the Temporary Worker – Government Authorised Exchange Scheme may be the best immigration route for them.  This will require you to register with an Authorised Exchange Scheme in order for the prospective intern to be sponsored under the category. 

Alternative routes may also be possible depending on the intern’s individual circumstances.

You should avoid a policy of “resident only” interns. This could be considered as discriminatory.  However, you should make any offers of a placement conditional on appropriate immigration status and check early on in the process what permissions may be required.  You should be asking for proof of the right to work of all applicants in order to avoid accusations of discrimination.

4. Intellectual property, data protection and confidentiality

Unlike employees, intellectual property rights created by interns will not automatically be considered the property of the firm.  Therefore, an agreement which requires individuals to assign any intellectual property rights that they might create whilst on placement (such as blog posts, articles or presentations) is advisable.

Interns should also be required to observe confidentiality in order to protect sensitive commercial information which they may receive in the course of their placement.  Otherwise, the firm may not have any legal remedy if key know-how, client information, gossip or intelligence finds its way to a competitor when a vacation scheme candidate moves on to another firm.      

Interns, vacation scheme candidates, those on work experience and volunteers will all be data subjects under the UK General Data Protection Regulation and Data Protection Act 2018.  They should therefore be given a data privacy notice describing what data will be collected and held by the firm, and the firm should observe the usual restrictions which apply to processing staff personal data.

5. Recruitment

Work experience and internships can often be given to the relatives, friends and connections of partners and clients.  Whilst there is no obligation for firms to open up work experience opportunities to a wider group of people, firms should be aware of the risks of accusations of discriminatory treatment or nepotism.  Best practice for paid internships and vacation schemes is to ensure that a fair and documented recruitment process is adopted for interns as would be applicable to your employees.  You should document the criteria applied to applicants and how the applicants were assessed against those criteria.  This is particularly the case where an internship is competitive and could lead to offers of full-time employment in the future.

Contact us

If you have any questions about these issues in relation to your own organisation, please contact a member of the professional services team or speak to your usual Fox Williams contact.