News 12 September 2019

Is ignorance an excuse for underpayments? Inexperienced sushi directors penalised

Three directors of a Sushi take-away store face individual fines issued by the Federal Circuit Court of Australia (the ‘court’) for contraventions of the Fair Work Act (the ‘Act’) including failure to pay minimum rates of pay and failure to keep employee records. This is despite the Fair Work Ombudsman (the ‘Ombudsman’) accepting the actions of the small business was not deliberate.

Flat rates undercut Award minimums

Over a period of three months in 2018, the take-away store employed nine full time and part time employees. The employees were all foreign nationals working, studying and living in Australia on valid visa arrangements. The business paid the employees flat rates between $16 - $22 per hour for operating the cash register, cleaning, and making sushi.

The Ombudsman, who is increasingly scrutinizing industries employing vulnerable workers, found the employees were underpaid a total of $19,467.24. The Ombudsman also found the business failed to comply with provisions in the relevant Fast Food Industry Award 2010 (the ‘Award’). For instance, the business failed to pay: minimum pay rates prescribed by the Award, loadings for Saturday and Sunday work, overtime rates, and annual leave loading. The business also failed to enter into written part-time agreements with relevant employees, as specified in the Award.

Additionally, the employees did not accrue Annual Leave or Personal leave for the part-time workers nor did were any payslips received, and no employment records were kept by as is required under the Act.

Directors claimed no knowledge of obligations

The directors, who said they had no previous experience in operating a food business or engaging employees, admitted to the breaches. They submitted they were following the practices put in place by a former director, who had experience running other sushi take-away businesses.

The directors submitted they genuinely believed workers were paid “above industry standard” and because they had no knowledge of their obligations, should be treated differently from employers who knowingly disadvantage employees.

Ignorance no excuse

The court considered a principal objective of the Act is to provide safety net for employee entitlements – and, effective enforcement mechanisms.

Even though the directors claimed they were operating under a system that was put in place by a previous director, the Court found there was no evidence they took any steps to verify whether they were legally compliant.

"There is no evidence that they made any enquiries whatsoever about the correct entitlements for their employees at any point after they took over from the previous business owner. That is curious given that it is notorious that wage rates and other entitlements change over time."

The court considered the failure to provide pay slips “particularly serious”, as it meant vulnerable employees were denied knowledge about the basis on which payments were made to them, and therefore could not determine correct entitlements for themselves.

Although the court found the conduct was not deliberate, it was “plainly grossly reckless” and ordered penalties for the purpose of deterring future contraventions both the business and by others who might be tempted to contravene the same legislation.

The business was ordered to pay penalties of $108,000; while the directors were ordered to pay individual penalties of $10,600; $3,550; and $3,550.

Implications for employers

  • It is a requirement for businesses to issue compliant payslips, and keep appropriate records as per the Fair Work Act 2009. Businesses should review record keeping practices, and implement any necessary changes to ensure compliance with the Act.
  • Wage rates and other entitlements change over time. The onus is on employers to take steps to ensure their operations are lawful. Practices established by previous owners may not be lawful and business reviews should be undertaken as appropriate.

How we can help

Good HR practices help to ensure your business is legally compliant, attracts high-quality staff, increases output and efficiency and creates a strong and positive workplace culture. Attend our New to Human Resources course to increase your knowledge of effective policies, performance management techniques and payroll and record keeping requirements.

By Jessica Kelly, Workplace Relations Advice Line Advisor

[2019] FCCA 2259

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