In a landmark ruling, the Federal Circuit Court has handed down $329,113 in penalties against online fashion retailer Her Fashion Box and sole director Kath Purkis for underpaying an intern and two other workers.
A former Shark Tank contestant, Purkis was ordered to pay a $54,855 fine for underpaying three workers in their mid-20s a total of $40,543, including entitlements, between 2013 and 2015.
Purkis’ business — which sold boxes containing fashion accessories but has since shut down — has been fined $274,278 in what Federal Court Judge Nicholas Manousaridis said is a “powerful deterrent”.
The court heard the intern, who is a graphic designer with a university degree, “typically” worked two days per week for almost six months without pay.
Get daily business news.
The latest stories, funding information, and expert advice. Free to sign up.
The worker received a one-off payment of $1,000 after nearly six months, resulting in underpayment totalling $6,913.50.
Founded in 2013, Her Fashion Box was once considered a rising star in the booming online retail industry, attracting provisional commitment from Shark Tank investors Janine Allis and Andrew Banks for $200,000 in 2015.
The deal fell through soon after though, with Purkis, who by this time was already underpaying several workers, failing to pass a due diligence check.
The business continued to trade through 2016, but according to details revealed by the Court, failed to generate any profit, making a loss of over $343,000 for the 2016 financial year.
By 2017, with debts over $200,000, Her Fashion Box was forced to shut down.
Purkis has previously fallen afoul of regulators, with NSW Fair Trading warning customers to avoid the business back in 2016 following complaints some users weren’t receiving products.
“Serious and sustained”
The intern, who the Court found should be classified as a part-time worker, performed duties including creating digital assets for the business.
Under the Fair Work Act, those who undertake productive work for a business are classified as employees and entitled to relevant pay and conditions.
Purkins, who did not respond to multiple requests for comment on Friday, submitted during the case she was “unaware of the laws and regulations regarding internships and employment generally”.
However, Purkins did agree she knew an award with a minimum rate of pay and conditions applied to the intern.
Judge Manousaridis found Purkis was aware the intern performed work for which they had not been paid.
“There is no doubt that the penalties, when viewed individually and as an aggregate, are substantial,” he said.
“Unfortunately, the contravening conduct in response to which I have assessed the penalties constitutes serious and sustained contraventions of important provisions of the Fair Work Act.”
“The respondents’ contraventions call for penalties which will operate as a powerful deterrent to others who may likewise be tempted to deliberately and willfully disregard their legal obligations,” Manousaridis said.
Startups missing the message?
Workplace Law managing director Athena Koelmeyer says the verdict is a “big deal”.
“It’s an awful lot of money for a small business,” she tells StartupSmart.
Koelmeyer says the involvement of unpaid interns shows the Court has taken a dim view on unpaid internships, which are an increasingly prevalent practice in Australia.
“This American practice of internships seems to just creep more and more into the Australian working environment every year despite the fact it’s very clear there’s no such thing as free work in Australia,” Koelmeyer says.
A 2016 study of internships found 58% of Australians aged between 18 and 29 had participated in unpaid work experience at least once in the last five years.
Koelmeyer says many startup founders, in particular, aren’t getting the message, preferring to avoid compliance with workplace laws until they are an established business.
“We speak regularly to startups who, through organisations, have access to us and accountants,” she says.
“Multiple times I’ve had delightful, brilliant startup founders say to me: ‘We may not exist in two years, thanks for telling me all those things I should be doing, but I’m going to do none of those’.”
Tilly South, policy director of Interns Australia, an advocacy group lobbying government for better regulation of internships, says she’s hopeful the judgment will send a strong message to startups.
“This action by the FWO should send a signal to businesses it’s not okay to expect free labour,” she tells StartupSmart.
South says unpaid interns, typically trying to get their foot in the door in an industry, are particularly vulnerable and often feel complaining could harm their careers.
“There’s been very little action in this area … future careers are at stake, so Fair Work often finds it difficult to get good cases,” she says.
Interns Australia is calling on the federal government to establish a parliamentary inquiry into unpaid internships with an eye on clarifying the law.
“Internships are by their nature unregulated, they’re not a specific type of work, they’re unregulated and therefore there’s no standard around what an internship should be,” she says.
In a media release about the case, fair work ombudsman Sandra Parker said the law around unpaid internships is clear.
“Unpaid placements are lawful where they are part of a vocational placement related to a course of study. However, the law prohibits the exploitation of workers when they are fulfilling the role of an actual employee,” she said in a statement.
However, workplace lawyer Peter Vitale disagrees, telling StartupSmart the workers, in this case, can’t even really be considered to be interns.
“The reality is one of the employees, at least for a short period, quite legitimately, signed up as an intern — the problem was that unpaid arrangement just continued,” he says.
Vitale says the “significant penalty” reflects the established deliberateness of the breaches.
“This is a very forthright statement by the Court,” he says.
“They’re trying to tell the startup and fledgling business community, just like you have to pay tax, just like you have to pay rent, you have to pay employees.”