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The Underpayment Scandals continue

Victoria Quayle, ||
In 2017, the Fair Work Act 2009 (Cth) was amended to impose stricter obligations on employers to keep employee time and wage records. The amendments have also equipped the Ombudsman with tougher powers to inspect employee records and have seen the quantum of fines that can be imposed on wrongdoing employers increase 10-fold. The driving force behind these amendments has been to maximise protection of Australia’s most vulnerable workers – migrants, young persons and persons from non-English speaking backgrounds.

As you would have no doubt have seen on the news or read in the papers (or online), many businesses are being caught red handed ripping off their employees, especially in the restaurant, hospitality and retail industries. The “ripping off” may be an employers innocent omission or inability to interpret and grapple with the intricacies of an Award or enterprise agreement. Alternatively, it may be based on something more dubious – a means of obtaining a financial advantage over competitors. Irrespective of the reason, employers and key personnel who are responsible for the day-to-day running of the business are and will continue to be held to account.

Often, underpayment issues are brought to the Ombudsman’s attention by a random audit conducted by one of its inspectors, or a tip off from a disgruntled employee. Over the last 12 months, the Ombudsman has been taking businesses, both large and small, to Court to ensure employees are paid what they are entitled to and have imposed significant fines. Businesses who have recently been under the microscope are Dominos, Subway, Sunglass Hut, Crust Pizza, 7-Eleven and PappaRich to name a few.

One of the largest penalties that has been imposed on a company and its key personnel since the introduction of the Protecting Vulnerable Workers legislation is illustrated in FWO v New Shanghai [2017].. The Director, HR Manager and Store Manager of New Shanghai were found to have committed ‘serious contraventions’ of the Fair Work Act and fines totalled around $400,000.

New Shanghai operates a Chinese restaurant. Over a 16-month period from July 2013 to November 2014, New Shanghai underpaid 85 employees more than $500,000. The underpayment was a result of its failure to pay:

  • minimum rates of pay;
  • casual loadings;
  • weekend and public holiday penalty rates; and,
  • overtime

under the Restaurant Industry Award 2010. It also did not make employer superannuation contributions.

The HR Manager and Store Manager were also found to be accessorily liable for their involvement in misleading the Ombudsman and falsifying employee records – for example, creating time and wage records and pay slips for employees. The HR and Store Managers were fined $21,760 and $18,496, respectively.

What is a ‘serious contravention’?

Under s 557A of the Fair Work Act a person commits a ‘serious contravention’ if:

  • the person knowingly breached the provision; and,
  • the person’s conduct constituting the breach was part of a systematic pattern of conduct relating to one or more other persons.

When determining a ‘systematic pattern of conduct’ the court can consider the following (non-exhaustive) factors:

  • the number of breaches of the Fair Work Act committed by the person;
  • the period in which the breaches have occurred;
  • number of persons affected by the breaches;
  • the person’s response, or failure to respond, to any complaints made about the breaches; and,
  • failure to make or keep employee records.

Fines for serious contravention

The maximum penalty that can be imposed on a business for a serious contravention is $630,000 per breach and $126,000 for an individual.

Key takeaways

Underpayments are at the top of many people’s minds, especially the Ombudsman. This trend is likely to continue with many businesses and key personnel being held to account and will no doubt be subject to the full extent of the law. Late last year, the Ombudsman initiated proceedings in the Federal Circuit Court against a Perth-based franchise Hans Café and its former General Manager who are alleged to have underpaid employees and breached provisions of the Fair Work Act regarding payslips. Such conduct falls within the realm of ‘serious contraventions’ and we will have to wait and see what fines are imposed, given it is not the company’s first offence. Stay tuned!

To avoid your business making the 6.00pm news, it is crucial that employers keep comprehensive employee time and wage records, including pay slips and time sheets. Employers must also remain vigilant in conducting periodic checks of its rates, staying up to date with changes to the Awards and if you are ever in doubt, it is best to ask for expert advice sooner rather than later.

If you need advice on any of the items discussed above or your obligations as an employer, please do not hesitate to contact a member of Coleman Greig’s Employment Law Team.


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