Outsourcing firm Capita has found itself in a media storm over an unpaid traineeship it operates with no guarantee of a job at the end.

The scheme is advertised as a four-month position with the potential to lead into an on-site placement with one of the company’s blue-chip clients – although there’s no promise that it will open up a path to full-time employment for everyone who takes on the scheme.

Tanya de Grunwald – founder of careers blog Graduate Fog – is unimpressed, telling the Guardian: “However Capita tries to frame it, the structure of their graduate scheme is bizarre – I’ve never seen anything like it. Rather than recruiting graduates and then training them as salaried employees, they are appear to be training them as non-employees and then choosing whether to recruit them, presumably because it is cheaper.”

She added: “Dressing this up as a ‘free-of-charge’ opportunity really takes the biscuit. A cynical observer might say this is Capita doing what it does best – ruthlessly minimising its own costs.”

The controversy emerged just days after a Prospects survey revealed that 48% of young people aged from 16 to 25 have done an unpaid internship.

Prospects CEO Jayne Rowley said: “While unpaid internships are a feature of the student jobs market in the UK, they are not legal and companies should not offer them. An intern is entitled to be paid if they are a worker and no exclusions to the National Minimum Wage apply. Graduates should not feel that working unpaid is a necessity for their career. If a job is worth doing, it is worth paying for.”

With so many new entrants to the job market facing huge uncertainty around pay and progress, what is the message that leaders who offer unpaid traineeships or internships are sending out to young people?

“There is no ethical case for taking people on and not paying them,” says The Institute of Leadership and Management's CEO Phil James. “We keep hearing about how important it is to retain talent, and how valuable employers’ reputations are. Short-term, unpaid work militates against both of those, and one must always factor in websites such as Glassdoor, which enable former employees to publish warts-and-all portrayals of what employers are like. If you’re not playing fair, the online community will hear about it.

“Research we’ve been doing on millennials shows that young people are seeking something in addition to remuneration – they want to work for organisations whose values align with their own, where they can actually make a difference. I don’t see how anyone can argue that not paying someone for working for you is a position with which you should align if you’re in the business of making a difference.”

James points out: “Some organisations have a system where they’ll take on, say, six graduates and then keep only three. And in some cases, those six grads won’t be aware that that’s the plan. The issue with this approach is, how are the recruitment decisions as to who stays and who goes actually made? Have those leaders set selection criteria that would hold up under scrutiny? Or are they merely picking people that they think are superficially compatible and shrewd political operators? It’s like all the worst aspects of interviewing taken to another stage – selecting people for personality rather than potential. I wonder what companies with forward-looking HR policies would say about that.”

He adds: “There’s another inequality-of-opportunity aspect to this: if you’re a young graduate who’s working unpaid, there’s no student loan to support you. As such, it’s highly likely that you would fund your placement in the same way that you did Year 10 at school – by relying upon your parents, who are providing you with accommodation and food. So it becomes a case of other people footing what is essentially a corporate expense.

“None of this helps the cause of diversity. If employers focus only upon those who can afford to do unpaid work for six months or a year, then that’s hardly the widest talent pool.”

For further thoughts on a range of development issues, check out these learning resources from the Institute