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 construction sector, the burning issues is contracting of employeeson arrangements that don’t meet the minimum standards and sham contracting. Itis important to remember that an employee cannot agree to accept less than theminimum legal entitlements. Regardless of what your employees say, if you areaudited and found to not comply with your obligations, you can expect to beissued with an order to back pay employees any amount identified in an audit. Someof the big cases that unfolded in 2019 were initiated by FWO audits of self-assessments,pre-empting external audits.

Risks in the workplace

What does this mean for your business? The FWO has actively pursued prosecutions against employers who have failed or refused to conform with Compliance Notices issued by industrial inspectors. In recent times, they have succeeded in having penalties applied to both the companies and the directors personally, in addition to the amounts assessed as owing to employees.

To minimise the risk of facing penalties, back payments and the cost of legal representation in a dispute, you need to understand what, if any, modern awards apply to your business and how they apply. Modern awards set the minimum standards in an industry or occupation and it is surprising how many people don’t realise that they exist or that they apply to their business. If you don’t understand your obligations, professional advice is vital to protect your business interests.

The businessesthat 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 business structures or may have undertaken their own researchwithout understanding the complexities of employment law or that the law inother countries can be substantially different. Often, employers who think theyare doing the right thing find out later that are not complying with theirlegal obligations. It has been made clear that employers’ ignorance of theAustralian 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 service idea is not the only important consideration. If you need to employ staff, you must understand and properly exercise your obligations to them. In any business, 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 you set up your employment arrangements will save you time and money. If you are going to have someone else process payroll for you, make sure that they understand any modern awards that apply to your business and that they know how to apply them. Also, make sure that you have a good accountant who can regularly review the profit and loss for the business and alert you to any impending concerns. If you are concerned that your business 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 0000 or at michelle.cowan@activelaw.com.au.

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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.