Employer Underpayment Penalties – Recent Cases | Bell Legal

Margaret Miller

30 November, 2016

Commercial Law & Business TransactionsDispute Resolution, Insolvency and Litigation

So far in 2016, the Fair Work Ombudsman (FWO) has been in the news for successfully prosecuting several companies for unlawful underpayments to employees. The courts are imposing record penalties on companies and their directors.

The FWO published an open letter on the FWO website, warning companies and directors of the consequences of underpaying employees. The letter warns employers that the “tide is turning” and the “escape routes of sending a company into liquidation to avoid penalties and having to back-pay workers … are now being shut down“. The FWO announced that it is pursuing employers that cannot or will not pay employees properly and it will also refer matters to the Australian Securities and Investments Commission for investigation where the FWO believes a director has breached legal obligations. The website letter followed recent decisions which saw record-breaking undertakings and penalties applied to companies and directors found to have underpaid, or been involved in the underpayment, of their employees.

In Fair Work Ombudsman v Mai Pty Ltd & Anor (2016), Justice Jarrett imposed the largest ever penalty of $408,348. The director of the 7-Eleven franchise was ordered to pay $68,058 and his company, Mai Pty Ltd, $340,290. Justice Jarrett considered the serious underpayments, which represented substantial amounts to employees depending on the minimum wage and the company’s attempts to frustrate the FWO’s investigations by concealing more than $82,000 in underpayments.

Justice Jarrett in Fair Work Ombudsman v Step Ahead Security Services Pty Ltd & Anor (2016), clarified that directors of companies can no longer hide behind the corporate veil if they underpay workers. Justice Jarrett imposed penalties of more than $308,000 and the director of the company, Mr Jennings, was ordered to pay $51,400 because Mr Jennings demonstrated a “blatant disregard for Australia’s workplace laws“. Besides his personal penalty, Mr Jennings was made personally liable to back-pay eight employees almost $23,000. Justice Jarrett also issued an injunction prohibiting Mr Jennings from underpaying security industry workers because of evidence he had been a director of a company investigated for alleged underpayments and he was an officer of another security company.

Other recent instances of employee underpayment pursued by the FWO :

• Sub-contractors of Myer department store were found to have employed cleaners on sham contracts, paying workers below the award wages and not paying penalty rates and superannuation;
• Endemic exploitation of 7-Eleven workers, revealing the company underpaid wages, doctored pay records and intimidated workers;
• Pizza Hut delivery drivers were paid as little as $6 per hour in sham contracting arrangements; and
• Baiada Group, Australia’s largest poultry processing company, was alleged to have underpaid staff wages, with employees working excessive hours and being charged for overcrowded rental accommodation.

Between 2014 – 2015 the FWO recovered $22.3 million in back-pay for over 11,000 workers. Because of the FWO emphasis on compliance, it is vital for employers to check their obligations and to proactively ensure employees are correctly paid.