Many young people working for free as interns are legally entitled to be paid, and could launch tribunal claims for back wages, a new report says.
Think tank the IPPR and campaign group Internocracy argue private sector firms are "almost certainly" breaking the law by offering unpaid internships.
The report says many volunteers could be legally defined as workers under national minimum wage legislation.
It warns the current position leaves employers open to compensation claims.
"Private companies will normally be under a legal obligation to treat people employed on internship programmes as workers and to pay them the appropriate minimum wage," the report, by Kayte Lawton, of the IPPR, and Dom Potter of Internocracy states.
"Employers often mistakenly believe there is a grey area around internships in the NMW (national minimum wage) legislation that allows them to take on unpaid interns as long as both sides understand it a voluntary position - but this is simply not the case."
That, they say, means employers could be open to claims from current and former interns to compensation at employment tribunals, and employers could be liable for up to six years for back pay.
The report says the government should take a lead by phasing out unpaid internships in the publicly-funded organisations, starting at the BBC which it claims employs hundreds of unpaid interns each year.
But the BBC said it had a long and successful track record of training and developing young people from diverse backgrounds for careers in the creative industries.
"With work experience now a mandatory requirement for most schools and colleges, we receive hundreds of applications from people who want to get work at the BBC and our policies ensure that people are selected based on merit," a spokesman added.
The report also suggests politicians should also consider scrapping unpaid internships at Parliament and in constituency offices.
"We now have entire industries that rely on the willingness of young people to work for free," said Mr Potter.
"In the long run this is bad for business because it damages the reputation of these industries and makes it difficult for them to recruit for the broadest pool of talent.
"It also means young people from well-off backgrounds or with good connections have an instant advantage when it comes to finding a permanent job."