Private companies are breaking the law and leaving themselves vulnerable to legal action if they employ unpaid interns, Midlands law firm MFG has warned.

It is backing a report by the Institute for Public Policy Research and social enterprise organisation Internocracy, which claims the system is flawed.

Sally Morris, head of MFG's employment department, said: "Many companies believe they do not have to pay those on internships if both sides understand that the position is voluntary, but this is not the case under employment law.

"Anyone working for a private company must receive no less than the minimum wage. However, surveys have found that only half the organisations using interns pay them at least this amount.

"Should a current or former intern make a claim against a company, the employer could be deemed liable for up to six years' back pay. In addition, businesses in sectors that rely on employing unpaid interns could see their reputation tarnished, narrowing the pool of candidates that they can hire from."

The report argues that in particular the less well-off are disadvantaged by the intern system as it currently stands.

It states: "Many well-qualified, talented and passionate young people lack the resources to pay their own way through an unpaid internship. 

"We argue that the informal system of unpaid internships operating in many of our most exciting and influential industries actively excludes young people who come from less well-off families."