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Employment Update – April 2017 – Federal Circuit Court provides guidance on determining award coverage; FWO compliance notice upheld

The Federal Circuit Court has given some very clear guidance to employers around the steps they must take to determine appropriate award coverage for a particular business or position. This guidance comes from a very interesting case, where a religious organisation formally contested a compliance notice delivered to it by the Fair Work Ombudsman.  This case has been reported as the first judicial contest of an FWO compliance notice, and so is interesting for that fact alone.

Facts

The employee in question had been engaged to perform work in a temple in Melbourne, and had been granted a visa as a ‘religious worker’ to perform work for that purpose. Whilst the employee was engaged to perform an ‘assistant to priest’ role, it was accepted by the presiding Judge Reithmuller that the majority of his duties were in fact preparing and cooking food in the organisation’s canteen.

The employee ceased working for the organisation after suffering a work related injury whilst using one of the cooking implements in the canteen. As a consequence of the injury, the employee attended a solicitor and a complaint was subsequently made to the FWO highlighting that the employee’s employment contract provided for a lower hourly rate than was payable to a person working in a kitchen and under the Restaurant Industry Award 2010.

Upon investigation, the FWO determined that the employee was a person covered by the Restaurant Industry Award 2010 (‘Award’) and issued the employee with a compliance notice, ordering the organisation to backpay the employee some $78,000.  The organisation disputed the notice on the following basis:

  • the organisation was not “in” the restaurant industry and therefore not covered by the Award;
  • the employee was not appropriately classified as a cook under the Award; and
  • the calculations carried out by the FWO in drawing the compliance notice were incorrect.

In a previous decision in relation to this same matter, Judge Reithmuller decided that the onus of proof lay with the organisation in relation to having to prove that it did not commit the contraventions alleged in the compliance notice.

In this decision, Judge Reithmuller said that there two primary matters that had to be canvassed in this case – the first being whether the canteen run by the religious organisation was covered by the Award, and secondly, whether the employee was working as an assistant to priest role, or was otherwise a ‘cook’ as covered by the Award.

The Evidence

Evidence was given by a number of witnesses, for both the FWO and the organisation. It was accepted that the employee was granted a visa on the basis that he was to perform an assistant to priest role, which meant that he was considered a ‘religious worker’.

One of the damning pieces of evidence for the organisation was the organisation’s annual reports. In the 2010/2011 Report it was noted that the gross income of the canteen was approximately $280,000 per annum, whilst the 2012/2013 Report showed $680,000 had been taken in catering income for that year.  Critically, in the 2010/2011 Report, there was a reference to the canteen recruiting an ‘experienced chef and an additional cook’ and the growth of the canteen in relation to these ‘additional resources’.  It was accepted by Judge Reithmuller that the reference to the ‘additional cook’ was a reference to the employee.

There were significant submissions made around the cultural significance of preparing food for the particular religion, which appears to be an attempt by the organisation to justify the employee’s cooking duties as part of his ‘religious duties’. However, this argument was countered through evidence to the effect that the majority of the cooking that the employee did was for commercial purposes or to give away.

Judge Reithmuller also found that the organisation’s witnesses did try to minimise the significance of the employee’s cooking duties in their evidence.

There was significant analysis undertaken by Judge Reithmuller of the relevant employment documents, including the relevant position description document that was provided to the immigration department with respect to the employee’s visa application. Judge Reithmuller noted that not one of the core skills required for the position involved cooking.  Judge Reithmuller made the following statement regarding the employment documents and the evidence led by the organisation:

“The tenor of the documents and evidence, to the effect that the [organisation] was primarily focused upon religious duties as an assistant priest, is inconsistent with the material contained in the Annual Report of 2010/2011, where [the employee] was described as a new cook. Not only are the duties inconsistent with the description in the Annual Report, the description does not sit well with the argument that [the employee] was employed to join the organisation in a position that involves at least some degree of religious leadership, which one would expect would ordinarily result in the organisation giving considerable respect to him in title (not referring to him as a cook) and in treatment of him as a religious worker.”

The FWO’s witnesses, taken as a whole, conveyed the view that the employee was employed as a cook, rather than an assistant priest.

On the basis of the evidence presented, Judge Reithmuller was satisfied that the employee was employed as a cook.

Application of the Award and Decision

Judge Reithmuller, considered the coverage provisions in the Restaurant Industry Award 2010 and the definition of ‘restaurant industry’ in some detail in this decision.

Ultimately, Judge Reithmuller determined that the Award did apply to the employee in this circumstance, and he explained this decision concisely in [60]-[64] of the decision. This extract of the decision is important reading for employers on the issue of determining appropriate award coverage:

“Counsel for the [organisation] argued strongly that the industry that the [organisation] was engaged in was one related to religion (although I have some hesitation in describing a religious organisation as being engaged in an “industry”) rather than being engaged in the “restaurant industry.”

It is important to note that a business or entity may be engaged in more than one industry in the operations that it undertakes. A simple example flows from the definition in the Award, where roadhouses are specifically included within the restaurant industry, yet roadhouses as commonly experienced in Australia are almost invariably engaged in the provision of petrol and diesel motor fuels, and associated automotive products, not simply providing food and beverages for travellers breaking their journey. I am persuaded that entities such as the [organisation] can be engaged in more than one industry.

The issue then becomes whether or not the canteen operated by the [organisation] results in the [organisation] also being in the restaurant industry. The canteen in this case provides some religious foodstuffs, and a large amount of food that is given away on a religious basis. If the operation of the canteen were limited to this, I would struggle to conclude that it was in the “restaurant industry” as opposed to being an incident of the religious activities of the [organisation]. However, the canteen at the Cultural Centre is engaged in providing food for sale to devotees and visitors. The sale of food to these groups (either in the canteen or by catering) is clearly of significant proportions, having resulted in revenue of over $600,000 in the last financial year for which reports were provided in evidence. These meals, whilst they may be inexpensive, are priced on the basis of generating income, which is then applied to other parts of the [organisation’s] operation in providing religious services. However, overall, the [organisation] remains a non-profit organisation, applying the gains generated from some centres, such as the canteen, to the continued operation of other centres, such as the Temple.

I note that the definition of restaurant industry in the Award includes businesses that are not traditionally considered restaurants, such as night clubs, reception centres, tea rooms and cafes. It appears that the Award is intended to cover those employed to prepare meals unless in an excluded category. The exclusions in cl.4.8 do not cover the activities of the [organisation] even by analogy.

Ultimately, I am persuaded that the [organisation] is within the “restaurant industry”, at least to the extent of the operation of its canteen in the Cultural Centre.”

Having determined that the Award did apply to the employee, the Judge then went on to agree with the FWO’s view that the employee should be classified as a ‘cook grade 1’ for the purposes of the Award, noting that the overwhelming proportion of the duties performed by the employee were that of an assistant cook.

Judge Reithmuller also concluded that the organisation had failed to establish that the calculations recorded by the FWO with respect to the calculation underpayment were incorrect.

On that basis, Judge Reithmuller determined that the application to have the FWO’s compliance notice cancelled should be dismissed.

Lessons for Employers

To begin with, this decision shows that compliance notices issued by the FWO can be contested, although the employer will bear the onus of proof in establishing why a compliance notice should be cancelled – something that was not achieved by the organisation in this instance. Necessarily, an employer who wishes to take on the FWO does needs to be confident in its position, as it is undoubtedly a costly and time consuming process to litigate against a public authority such as the FWO.

Secondly, the guidance from Judge Reithmuller on the issue of award coverage is instructive. Employer’s should not be complacent in determining award coverage for their business.  It is clear from this decision, and it is the reality of Aitken Legal’s experience, that quite often businesses are subject to a number of different awards.  This decision confirms that award coverage is not solely determined by the industry in which the employer is engaged, and that consideration must be given to the particular duties being performed by relevant employees, and where coverage might lie for those duties.

Undoubtedly, determining correct award coverage can be a difficult and time consuming task, which can come at a significant cost if incorrect decisions are made. Aitken Legal does recommend, where there is any doubt as to appropriate award coverage, that legal advice be sought, so as to avoid unwanted underpayment claims that may follow the misclassification of an employee (be it under the wrong award, or the wrong classification within that award).