Legal Alert – Fair Work Ombudsman prosecuting for non-compliance

Legal Alert - Fair Work Ombudsman prosecuting for non-compliance

Over the last couple of years, Australian media channels have regularly reported on underpayment issues in corporations and the hospitality industry, shining a light on big names like George Calombaris, Neil Perry, Woolworths and Wesfarmers.  In the 2018/19 financial year, the Fair Work Ombudsman (FWO) recovered over $40 million for nearly 18,000 workers, conducted over 2800 workplace audits nationally and the courts also imposed penalties of $4.4 million arising from FWO litigation action. ​​

The mostrecent case reported by the FWO is regarding legal action commenced in theFederal Circuit Court against the operator of a Thai restaurant in Newcastle.It is alleged that the business owner breached the Fair Work Act by failing toconform with a Compliance Notice requiring him to correctly calculate andback-pay alleged underpayments of his employees, some of whom were visa holders.The Compliance Notice was issued after a Fair Work Inspector investigated thebusiness records and concluded that the business owner allegedly underpaidminimum wage rates for ordinary hours, casual loading, overtime, weekend andpublic holiday penalty rates under the award. The FWO is seeking a maximumpenalty of $6,300 which is a significant amount for a small business.

In the FWO2018-2019 annual report, the FWO stated:

“It’s a fact that mistakes happen, and this can lead to underpayments. However, the onus is on the employer to comply with workplace laws, and immediately rectify any issues that arise.

Under our new Compliance and Enforcement Policy, I announced that we would increase our use of compliance notices. Fair Work Inspectors issue compliance notices if they reasonably believe an employer has breached workplace laws. If the breach isn’t fixed, we won’t resile from taking the matter to court.”

As a resultof the Compliance and Enforcement Policy adopted by the FWO, there has been agrowth in the number of employers self-reporting underpayments. Wherecompanies self-disclose, the FWO will consider all appropriate enforcementoptions, and litigation may still be considered as the most appropriate action forserious non-compliance or late or incomplete disclosure.

The FWO havestated that they:

“expect non-compliant employers, as a minimum, to enter into a court enforceable undertaking (EU) and immediately pay back money plus interest owed to workers. We also expect them to pay for ongoing independent audits of their payroll, with FWO oversight, to ensure underpayments don’t happen again. Companies that do not comply with the EU and companies that do not work cooperatively with us can expect litigation. Consistent with open and transparent governance, FWO will publish all EUs on our website.”

As an example,George Calombaris’ hospitality group initially reported underpayments of lessthat $2m. However, the FWO audited the group and identified $7,849,324 inunderpayments to over 500 employees. Adding the additional $200,000 contritionpayment, the group had to pay $8,049,324 under an EU. By making those payments,they avoided prosecution and possible significant penalties for breaches of theFair Work Act.

Fair Work Ombudsman

In a speechto the Australian Industry Group, Policy Influence Reform Conference in mid-2019,the FWO announced that the 2019/20, priority industries or issues they wouldfocus on were:

• Fastfood, restaurants and cafes;
• Horticultureand the Harvest Trail;
• Supplychain risks;
• Franchisors;and
• Shamcontracting;

and that vulnerableworkers would continue to be a priority, as would matters that:

• areof significant public interest;
• demonstratea blatant disregard for the law;
• areof significant scale or impact on workers or the community; and
• cantest the law or use new laws.

That framework has informed the FWO’s activities, resulting in a seriesof random regional audits and re-audits to enforce their initial audit findings.

For the NFP sector, the burning issues is contracting of employees onarrangements that don’t meet the minimum standards and the incorrectapplication of modern award terms. It is important to remember that an employeecannot agree to accept less than the minimum legal entitlements. Regardless ofwhat your employees say, if you are audited and found to not comply with yourobligations, you can expect to be issued with an order to back pay employeesany amount identified in an audit. Some of the big cases that unfolded in 2019were initiated by FWO audits of self-assessments, pre-empting external audits.

The FWO reported in December 2019 of a home-care services organisationin Western Australia more that was found to owe employees more than $6 millionafter breaching Australia’s workplace laws. The registered not-for-profitentered into a Court-Enforceable Undertaking with the FWO after self-disclosingthat it underpaid 124 current and former employees. The internal audit foundthat the NFP underpaid employees their overtime rates and Saturday and Sundaypenalty rates they were entitled to under the Social, Community, Home Care andDisability Services Industry Award for work performed between 2012 and 2018.

Carers were generally paid annual salaries of over $100,000 – butbecause they were effectively on-call 24 hours a day to care for children, manywere considered ‘continuous duty employees’ under the Award and were entitledto annual wages of well over $200,000. The NFP agreed to back-pay affectedemployees a total of $6.36 million in wages, superannuation and interest. Paymentsto individuals ranged from less than $1000 to more than $500,000.

Risks in the workplace

What doesthis mean for your organisation? The FWO has actively pursued prosecutionsagainst employers who have failed or refused to conform with Compliance Noticesissued by industrial inspectors. In recent times, they have succeeded in havingpenalties applied to both the companies and the directors personally, inaddition to the amounts assessed as owing to employees.

To minimisethe risk of facing penalties, back payments and the cost of legalrepresentation in a dispute, you need to understand what, if any, modern awardsapply to your organisation and how they apply.Modern awards set the minimum standards in an industry or occupation and it issurprising how many people don’t realise that they exist or that they apply totheir organisation. If you don’t understand your obligations, professionaladvice is vital to protect your organisation’s interests.

The organisationsthat have been issued Compliance Notices often didn’t set out to do the wrongthing. Unfortunately, they may not have sought professional advice on how toset up their organisational structures or may have undertaken their ownresearch without understanding the complexities of employment law or that thelaw in other countries can be substantially different. Often, employers whothink they are doing the right thing find out later that are not complying withtheir legal obligations. It has been made clear that employers’ ignorance ofthe Australian employment standards cannot be relied on to defend claims.

Managing risks of underpayment

If you becomeaware that you have not correctly paid employees, you need to correct the errorand advise the relevant employees accordingly. Be mindful that employees have 6years from the date of an underpayment to pursue back payment. Additionally, employersare required to maintain their employment records for seven years and would becalled on where a claim is made. The Fair Work Act and Regulations are clearabout the information type and content that must be kept and failure to complywith your record keeping obligations can result in penalties against you.

A great serviceidea is not the only important consideration. If you need to employ staff, you mustunderstand and properly exercise your obligations to them. In any organisation,investing in reliable professional advice will save you much more than it costs.Speaking with someone who has expertise in employment law and who can help youset up your employment arrangements will save you time and money. If you aregoing to have someone else process payroll for you, make sure that theyunderstand any modern awards that apply to your organisation and that they knowhow to apply them. Also, make sure that you have a good accountant who can regularlyreview the profit and loss for the organisation and alert you to any impending concerns.

If you are concerned that your organisation may not be compliant with its employment obligations, our team can provide advice and draft documents to help ensure that you remain compliant with your obligations. You can contact us on (07) 3160 0010 or at michelle.cowan@nfplawyers.com.au

Disclaimer – Reliance on Content
The material distributed is general information only. The information supplied is not and is not intended to be, legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.