Thinking | 25 July 2019

$7.83 million in back pay required by FWO

Significant reputational damage is not the only issue companies should be aware of in cases of erroneously underpaying staff, as discovered by MAdE Establishment (MADE) after entering into a Court-Enforceable Undertaking (EU) with the Fair Work Ombudsman (FWO) last week.1

The beginning of the underpayment issues date back to 2015 when the FWO issued a letter of caution to MADE, the company of which George Calombaris is founding shareholder and former director (from 2008-2018), concerning the underpayment of one of its employers at the recently closed restaurant ‘Press Club’.

Two years later, MADE self-reported to the FWO after identifying a range of circumstances where it failed to correctly pay employees from 2011 - 2017.

The FWO subsequently commenced an investigation into MADE’s group of companies: Press Club and Gazi restaurants in Melbourne’s CBD and Hellenic Republic restaurants in Brunswick, Kew and Williamstown. The FWO also extended its investigation to restaurants operated by Jimmy Grants Pty Ltd, as it has common shareholders and directors with MADE.

The investigation uncovered the extent to which staff were underpaid. The amount totalled $7,832,953 for 515 former and current employees at MADE restaurants and $16,371 for nine employees at Jimmy Grants. The underpayments were a result of the restaurants either paying employees annualised salaries and failing to ensure the salaries were above minimum requirements once overtime and penalty rates were worked, or not paying employees, particularly casual employees, at the correct classification under the Restaurant Industry Award 2010.

In addition to the $7.83 million in back-payment, the EU requires MADE to pay a $200,000 contrition payment.2 MADE must self-fund external auditors to check workers’ pay and conditions. They are also required to, at their own cost, publish public written apologies on social media, their website and in prominent positions in the Weekend Australian, Saturday Age, and Saturday Herald Sun.

George Calombaris also finds himself with personal obligations. Under the EU, Calombaris must complete seven public speaking engagements to educate the restaurant industry about workplace law compliance. The speeches must be ‘communicated in a manner that is consistent with George Calombaris’ usual language and style’.3

The Fair Work Ombudsman, Sandra Parker said this EU:

‘…commits MADE to stringent measures to ensure that current and future employees across their restaurant group are paid correctly…MADE’s massive back-payment bill should serve as a warning to all employers that if they don’t get workplace compliance right from the beginning, they can spend years cleaning up the mess’.4

Ms Parker also said:

‘[t]he Fair Work Ombudsman is cracking down on underpayments in the Fast Food, Restaurant and Café sector, and we urge employers to check if they are paying their staff correctly’.5

Implications for employers

Accordingly, it is vital that employers (particularly in the restaurant and fast food industries) are aware of their obligations with respect to employee entitlements under applicable workplace laws. They should be aware of the myriad of ways in which a company could, even inadvertently, underpay its employees. These may include:

  • payment of hourly rates less than the prescribed minimum rates of pay;7
  • failure to pay penalty rates, overtime, allowances and any applicable loadings;
  • any form of deprivation of an employee’s statutory leave;
  • any inappropriate deductions from wages;
  • work being performed ‘off the books’; or
  • any form of ‘sham contracting’ or commission-only arrangements.

Underpayment not only places the company at financial risk (serious breaches by a company in relation to payment under a modern award could result in fines of up to $630,000 per breach) but also its directors, and in some cases, senior employees at risk if they are involved in the conduct.

Therefore, we recommend all employers adopt the following risk minimisation strategies:

  • ensure they have in place robust systems and processes that monitor compliance with applicable legislation and applicable statutory instruments, such as modern awards;
  • regularly (and at least yearly) conduct reconciliations to ensure annualised salaries are sufficient to compensate for minimum entitlements under applicable awards and make payments for any shortfalls detected;
  • ensure all employees with responsibilities for human resources and payroll are appropriately trained; and
  • seek legal advice if any non-compliance is detected.

Our Employment team would be pleased to assist your business to navigate the complexities arising from any wage-related issues.

This article was written with the assistance of Alexandra Davies, Lawyer.

2The contrition payment is to be made to the Commonwealth Government’s Consolidated Revenue Fund.
3Enforceable undertaking between The Commonwealth of Australia and MADE Establishment Pty Ltd (ACN: 132 388 857)
6Fair Work Ombudsman v Ohmedia Melbourne Pty Ltd [2015] FCCA

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