Repeat offender penalised $230K for an underpayment of $5K – first successful “serious contravention” wage underpayment case brought by the FWO
In the recently handed down decision of Fair Work Ombudsman v Tac Pham Pty Ltd & Anor1, a Federal Circuit Court Judge ordered a former franchisee of a Han’s Café outlet and its general manager to pay $230,040 in penalties following a finding of a “serious contravention” for underpayments (not paying minimum wage and penalty rates), failure to provide pay slips and failing to provide payslips in the required form.
The Respondents admitted to the serious contraventions in underpaying 11 employees a total of $5,111 between 25 September 2017 and 8 April 2018 - just months after admitting to similar contraventions in a previous Federal Court proceeding for the period of December 2014 to December 2015.
This is the first successful prosecution by the Fair Work Ombudsman under the “Protecting Vulnerable Worker” laws (amendments to the Fair Work Act 2009) which came into effect in September 2017. The penalties under these provisions are severe with maximum penalties ten times the usual civil penalties applied for such breaches (currently up to $666,000 for a company and $133,200 for an individual involved in a contravention).
A “serious contravention” is where the person knowingly contravened the provision and their conduct was part of a systematic pattern of conduct2. In this case, the respondents admitted that their contraventions were “serious contraventions” in an agreed statement of facts (although they did then unsuccessfully seek to resile from this position in submissions), so the Court was not required to consider the application of these provisions in any detail.
It was then left to the Court to determine the appropriate penalty in the circumstances. In assessing the penalty, the Court considered several factors and circumstances.
The Court held that this was a case of repeated contraventions, that the extent of the non-compliance had increased from the previous case, and that it was deliberate. Despite the general manager committing to engaging external consultants to assist with payroll in around August 2017 (during the first case), she did not do so until after the Fair Work Ombudsman commenced a further investigation in around May 2018 and after her accountant advised her of a further $7,000 underpayment. Judge Kendall held that, “the respondents had no intention of changing their conduct and would have continued as they had been” if not for the follow up audit.
The general manager attempted to explain the circumstances surrounding the contraventions, saying that she relied on a payroll system that she believed she had correctly updated, that she had significant English language difficulties and struggled to understand the payroll system, and that she is a mother to six children. However, Judge Kendall quickly dismissed these explanations, saying that the general manager was responsible for the business and it was incumbent on her to ensure that she had the capacity to ensure she complied with the relevant Award and the Fair Work Act.
Despite the relatively small amount of the overall underpayment, it represented an underpayment of approximately 23% for the employees concerned so the Court did not consider that this warranted a reduction in penalty. The Court noted that some of the underpaid employees were juniors who were particularly vulnerable and sensitive to underpayments.
Whilst the respondents demonstrated contrition and cooperated with the Fair Work Ombudsman, the Court noted that they had also demonstrated contrition in the previous court case, and nonetheless failed to undertake steps to ensure there were no further underpayments. Interestingly, very little attention was paid to the fact that the underpayments were rectified as soon as the employer was made aware of them.
The Court noted that this was a case where both specific deterrence (to those involved, who apparently owned other businesses) and general deterrence (to those in the hospitality industry, where such contraventions are ‘rife’) were critical. In that regard, the decision is very important to the current debate concerning the adequacy of the civil enforcement provisions in the Fair Work Act, particularly the appropriate regulatory setting for the maximum pecuniary penalties which can be imposed by a Court. Employer groups have argued that any reform in these respects is premature, given that the general deterrent effect of the Protecting Vulnerable Workers laws is yet to flow through because of the lack of judicial authorities applying them. Further information about the Morrison Government’s discussion paper on this and other topics relating to potential enforcement and compliance reform is also available in the related articles.
In considering all the circumstances and relevant factors, the Court was highly critical of those involved, and ordered penalties against the business of $191,646 and against the general manager of $38,394.
Unintentional wage underpayments typically occur because of a failure to pay minimum industrial instrument or National Employment Standards entitlements (either through an administrative failure or a miscalculation of an annualised salary), or due to misclassifying employees (as casual rather than permanent, or as contractors rather than employees).
The risk of inadvertent wage underpayments can be mitigated by ensuring all employees have considered and well-drafted employment contracts and by conducting regular reviews of entitlements and employment conditions. In addition, addressing wage underpayments when they become apparent can require complex interpretation of industrial instruments and written employment contracts, as well as an understanding of the sensitivity of communicating with employees, other stakeholders and even the Fair Work Ombudsman. It is also very important that if employers are audited or prosecuted by the Fair Work Ombudsman that those involved have highly experienced legal representation to ensure protection of rights. We have recently advised and assisted employers in managing underpayment issues and to successfully defend related civil penalty litigation commenced by the Fair Work Ombudsman.
HopgoodGanim is well placed to assist with preventing wage and entitlement underpayments, managing underpayments where they occur and, if necessary, defending legal action alleging underpayments. For further advice and practical assistance, please contact our Workplace and Employment team.