A recent decision of the Federal Circuit Court of Australia demonstrates the serious implications of underpaying employees, and in particular underpaying ‘vulnerable’ employees.
In this case, the Fair Work Ombudsman successfully pursued a regional café and its director for the exploitation of overseas workers, as well as three Australian citizens, handing down the highest penalty the Fair Work jurisdiction has seen in relation to the underpayment of workers.
Conduct and default decision
The Employer, who failed to appear at either the substantive hearing or the penalty hearing, was found by Judge Altobelli to have engaged in a ‘cash back’ scheme which resulted in two overseas workers in particular being significantly underpaid. In particular, the Employer was found to have engaged in the following contraventions of the Fair Work Act 2009:
- The Employer required the overseas workers repay part of their wages in cash to the Director. They did so “under threat of cancellation of their visas and termination of their employment.”
- The Employer and the Director failed to pay the overseas workers, as well as three other Australian citizens the minimum entitlements that they were entitled to under the Restaurant Industry Award 2010. The underpayment included payments with respect to “minimum wages, penalty rates for weekends, public holiday and extended shifts without meal breaks and overtime rates of pay”.
- The Employer failed to provide annual leave and personal leave entitlements to the overseas workers.
- The Employer failed to pay one of the overseas workers in lieu of notice of termination.
- The Employer “created employment records that included inaccurate information in respect of amounts paid to employees and hours worked by employees, knowing this information was false. The [Employer and director] subsequently knowingly provided these false records to the Fair Work Ombudsman (FWO) on two occasions.”
- The Employer failed to keep overtime records of the overtime hours worked by one of the overseas workers.
In September 2016, Judge Altobelli issued a default judgment against the Employer and the director, accepting that all the alleged contraventions had occurred, and ordering that the Employer repay a total underpayment amount of $87,909.65 to the affected employees.
In the penalty hearing, the Fair Work Ombudsman submitted that “the conduct of the Respondents giving rise to the proceedings was extremely serious and highly aggravating.” It outlined some of the more serious conduct as follows:
- “[the overseas workers] were required to repay significant portions of their wages under threat of cancellation of their visa and threats of violence. The [Employer and director] deliberately and blatantly exploited the vulnerability of visa holders reliant on their employer to remain in Australia;
- the [Employer and director] created false and misleading records and provided these to the regulator as part of a deliberate strategy of deceit, to maintain the appearance of compliance while operating with a complete disregard for workplace laws;
- the total underpayments, which are in excess of $87,000, are very significant, and left [the overseas workers] in a position where they were working in excess of full-time hours, yet couldn’t even afford to meet their most basic costs, including groceries. None of the underpayments have been rectified.”
Judge Altobelli handed down penalties at the top end of the Fair Work Ombudsman’s recommended penalty range. His Honour commented that the FWO was probably conservative in their penalty range submissions in the circumstances of the conduct engaged in by the Director and the Employer. He ordered the Employer to pay $444,100 in penalties, and the director to pay $88,910 in penalties.
In reaching that decision, some of the key points made by Judge Altobelli were:
- The director had “deliberately exploited the imbalance of power between sponsor and visa holder in order to achieve financial gain.”
- That the Employer and the director had shown no contrition or remorse and that it could be suggested that they had tried to hide from the consequences of their actions by failing to participate in proceedings after May 2016.
- Whilst the director cooperated with the FWO to a degree, “any cooperation with the FWO stands in stark contradistinction to the decision to make, keep and then rely on the false records”.
- That “the repayment of wages, the grossly inadequate hourly rates paid and the false and misleading record keeping – is an affront to the minimum employment standards that all employees should be able to expect to receive in Australia.”
- That there is a need to send a message to employers and the community that workers need to be paid the correct entitlements.
- “[To] send a message to employers of migrant workers in Australia that the failure to afford the Australian safety net of minimum entitlements to migrant workers will not be tolerated.” Judge Altobelli agreed “that general deterrence is of fundamental importance to deter those employers who may be tempted to exploit the specific vulnerabilities of employees reliant on their employers for the ability to remain in Australia.”
Lessons for Employers
The facts and the outcomes of this decision speak for themselves. The underpayment of any employee is a serious matter. Usually an employee who believes they have been underpaid will make a complaint to the employer directly in the first instance. Depending on the response from the employer, an employee may then choose to make a complaint to the FWO in the hope that the FWO will help them to resolve the matter. An employer should make every effort at this time to resolve payment concerns.
Usually, the FWO will host a mediation between the parties to see if the matter can be resolved. Again, an employer should make every effort at this time to resolve any payment concerns. From there, the employee may choose to pursue the employer independently through an appropriate Court, or the FWO may seek to prosecute the employer on behalf of the employee/s. It is important to remember that any underpayment, where pursued, can potentially result in penalties being imposed on the employer by the relevant Court.
Despite all underpayments being a risk to an employer, where the employee who is subjected to the underpayment is a vulnerable person, and that person makes a complaint to the Fair Work Ombudsman, then it is more likely that the Fair Work Ombudsman will seek to prosecute the matter on the employee’s behalf. The Fair Work Ombudsman has made its stance against the exploitation of overseas workers very clear, and they regularly seek penalties (and significant penalties) against employers who engage in such conduct.
If you have any concerns about the interpretation or application of the modern awards or the Fair Work Act 2009 to your business, then please seek legal advice. Aitken Legal regularly helps employers understand their obligations under these instruments to ensure that the risks of an underpayment are reduced. It is also important to ensure that your contracts of employment with your employees are properly drafted and compliant with the relevant industrial instruments, as this will greatly assist in explaining terms and conditions to your employees, thereby reducing your risk of employees misunderstanding their entitlements and reducing your risk of an underpayment claim.
Chris Campbell, Partner