Contravening a modern award makes employer liable for payment of backpay to underpaid employees and civil penalties

Case background

The three employers all owned and operated fast food stores and employed about 30 employees. The employees they hired were classified as adult and junior employees. Those employees were covered by a modern award specifying the hourly rate of pay for work performed on ordinary hours, casual loading, and work on Saturday, Sunday and holiday. The underpaid employees were foreign students and immigrants.

Two complaints for underpayment of wages were lodged before the Fair Work Ombudsman by a first by a group of 17 employees and again, by a second group of 12 employees. The audit Investigation by the FWO found that the fast food stores failed to keep records and failed to issue pay slips to the employees and that the failure to maintain necessary records made it difficult for the FWO to determine whether the employees were indeed underpaid and if they were, by how much.

After the first audit, the FWO instructed the employers to correct the underpayment but they failed to comply. A second and a third audit was undertaken by the FWO.

Employers’ admissions

The employer admitted the allegations of contraventions of the modern award made against them. The employer had also provided back pay to the underpaid employees. The FWO and the fast food store owners had agreed upon an amount to be paid as civil penalty. This case filed by the FWO is for approval by the Fair Work Commission of the proposed civil penalty. Particularly, the FWC was asked to determine the amount of civil penalty that the fast food store owners must pay.

FWC’s duty to determine the appropriate civil penalty

There is a ceiling or a maximum amount of civil penalty that can be imposed on an erring employer. The FWC stated that its job was not to merely rubber stamp the pecuniary penalty that had been agreed upon by the FWO and the employer. Instead, the FWC must be satisfied that the proposed penalty was appropriate because the penalty is the mark of disapproval of the conduct of the employer. This will, hopefully, serve to educate and deter other employers from similar conduct.

In determining the appropriate civil penalty, the FWC must first identify the contraventions, determine whether the contraventions have a common element and show a pattern of conduct. The employer cannot be penalised more than once for the same conduct. The FWC must look at the totality of the circumstances of the circumstances.

Consideration of the totality of the circumstances

The FWC found that, indeed, an audit of the fast food stores showed that employees were paid less than their entitlements; the employer failed to make and keep employee records; and the record-keeping practices of the fast food stores were designed to conceal the underpayment. These were serious contraventions.

The FWC considered as well that the fast-food store owners were not cooperative with the FWO and that 3 audits were conducted. After the first audit, the fast food store owners were notified of the contraventions and yet, despite the directive by the FWO to pay the underpaid entitlements to the employees, the fast-food store owners did not immediately comply.

The fast-food owners also pleaded consideration because English was not the primary language of the owners and they had difficulty understanding basic English. However, the FWC noted that the underpaid employees were also employees whose primary language was not English. One of the fast-food store owner gave evidence that because of the Covid pandemic, it was going to close its stores even when the lock down has been lifted. The FWC also noted that all employers cooperated with the FWO’s audit and should be given a discount for that cooperation.

In light of all these circumstances, the FWC found it appropriate to impose a civil penalty on the first respondent in the amount equivalent to $161,998. On the second respondent, a civil penalty in the amount of $80,325 was also appropriate. Lastly, the third respondent who was going out of business due to losses, the penalty equivalent to $34, 616 is appropriate. The employers were allowed to pay P5000 within 28 days of the FWC’s orders and they were allowed to pay the rest of the penalty within 12 months.

Fair Work Ombudsman v Skypac Group Pty Ltd & Ors [2020] FCCA 2332 (26 August 2020)