PAYROLL SERIES | PART 3: When It Goes From Bad (Underpayment) To Worse (Court)
In our previous insight on underpayment risks and payroll compliance, we looked at several matters where the Fair Work Ombudsman (“FWO”) took a non-litigious approach in response to an employer’s self-disclosed underpayment.
In our third and final insight, we will continue to examine the FWO’s approach to underpayment matters, and in particular, consider some of the key cases where the FWO has instead escalated certain cases to the Courts.
Carnarvon Cleaners Pty Ltd
In this matter, the FWO brought litigation against Carnarvon Cleaners to seek penalties following the underpayment of more than $114,000 in wages and entitlements.
The underpayments arose in part from manual payroll practices causing inaccuracies.
For example, Carnarvon Cleaners had been applying the incorrect part-time allowance, failed to manually apply annual leave loading and broken shift allowances on each occasion, underpaid overtime hours due to data entry errors, and misplaced handwritten timesheets resulting in a failure to pay the correct public holiday penalty rates.
Further underpayments were caused by the misapplication of the underpinning award.
It is also noteworthy that Carnarvon Cleaners had been involved in a previous underpayment.
While the Court did not consider the more recent contraventions to be deliberate or reckless, it was determined that they were of sufficient gravity to be considered negligent or careless, resulting in the imposition of a $116,550 penalty against Carnarvon Cleaners and a further $23,310 penalty against the company’s director.
Han’s Café Rockingham
In 2020, the franchisee of Han’s Café Rockingham – Tac Pham Pty Ltd – was brought to Court by the FWO following an investigation which uncovered an underpayment of $5,111.
In this case, the employer had, only a few years prior, been investigated by the FWO which resulted in admissions to various contraventions of workplace laws.
Having been warned about the importance of complying with workplace laws previously, Tac Pham’s subsequent underpayment of its employees, despite being a relatively small monetary amount, was litigated by the FWO with a view to seeking the imposition of a penalty.
The FWO ultimately argued that the contraventions were serious, with the Court agreeing and calculating penalties based on the previously mentioned ten-fold maximum, imposing a total penalty of $230,040 (comprising $38,394 to be paid by the general manager personally, and $191,646 to be paid by the company).
Commonwealth Bank of Australia and CommSec
In February this year, the FWO announced that it had secured $10.34M in penalties against the Commonwealth Bank ($7.31M) and CommSec ($3.03M). These are the highest penalties ever secured by the FWO as a result of an underpayment prosecution.
The legal action related to the affected staff being underpaid more than $16M in wages and entitlements as a result of the employers “failing to put adequate checks and safeguards in place to ensure the Enterprise Agreements and Individual Flexibility Arrangements (IFAs) used for employees were implemented in a lawful manner”, according to the FWO. The employers failed to conduct reconciliations which meant that employees were not receiving top-up payments along the way to satisfy their minimum legal entitlements.
While Commonwealth Bank and CommSec self-reported the underpayments, the matter involved some “serious contraventions” given the employers’ knowledge of potential non-compliance, and those contraventions resulted in the applicable maximum penalties being multiplied by 10 as is permitted by the Fair Work Act 2009.
In handing down the penalties, Justice Bromwich commented: “What needs to be deterred is a system being left in place that allows for basic errors to be made without an adequate system of checking or detection and thereby correction.”
Echoing this sentiment, the FWO has since stated: “Employers cannot put in place systems that prioritise their financial or competitive advantage without also putting in place strong governance to ensure that those systems meet minimum entitlements.”
You can read more about this case in Cowell Clarke’s recent update here.
Key Take Aways
The above examples illustrate how litigated outcomes in relation to underpayments can differ from non-litigated outcomes.
In particular, where the FWO commences litigation in relation to underpayments, it will often result in the imposition of a civil penalty by the Court.
From these cases, we observe that:
If your organisation has underpaid its staff in the past, it is essential to ensure that your payroll system and processes are now in order to avoid a repeat incident.
Ensuring that your organisation understands and properly applies any applicable industrial instruments is paramount. The examples we have looked at throughout this series have shown that employers of all sizes and across a range of industries have been involved in underpayments which could have been avoided if their payroll system had been setup correctly in the first place and properly monitored.
Payroll is susceptible to human error. Care should be taken where there is a heavy reliance on manual payroll practices. Ideally, all employers should have a payroll system in place which is well-suited to the organisation’s size, work practices and applicable industrial instruments, with pay rules that are confirmed by legal advice.
Cowell Clarke is pleased to offer its RemCheck service to organisations that wish to obtain peace of mind by confirming their payroll compliance. Our Employment & Workplace Relations Team can also provide advice should you have any queries or concerns. Please contact Cassie Burfoot, Director, or Emily Gray, Senior Associate, for further information.