Some are, some aren't. Whether or not the placement is paid is usually up to the discretion of the employer rather than the university - the employer would like a university student, they send ads out to the universities, the universities pass this info onto the students. The university themselves don't usually have much to do with the years in industry, past making sure it abides by their standards. Of course some universities may have partnership links with certain companies for "exclusive" posts (i.e. saved for that university, not offered round to everyone), so there's no hard and fast rule.
They usually work like any other job though: you see a list of placements, you apply, they interview a shortlist, and then they choose who they want. So you can avoid applying for unpaid posts, although this can risk you not getting a placement at all (in some universities if you can't get a placement, you are automatically put onto the "standard" course without a year in the industry). The number of placements can often be quite limited, especially when the economy is down and companies are cutting back.
I say "usually" and "sometimes" because every course/university is different - some may guarantee a placement, others may not, some may guarantee placements are paid, others don't. So you either need to ask the university directly about your particular course, or give a bit more detail on what your course/university is so someone who's been through the process can tell you.
From anecdotal evidence, I know a lot of people who have done paid placements (not great pay, but enough to live on), but our lab takes on unpaid placements (in the NHS). A lot of the time it depends on what the employer can afford - big pharmaceutical/legal/etc companies may have a special budget for placement students wages, others offer placements as free labour because their budget is stretched enough as it is.