Thinking | 2 July 2020

The Fair Work Ombudsman is cracking down on underpayments and COVID-19 will be no defence: what do employers need to know?

By Aaron Dearden, Jessica Luker and Stevie Bladen

A recent series of highly-publicised cases have demonstrated that the Fair Work Ombudsman (FWO) will continue to take a tough stance on systemic underpayments of employee entitlements.

There is no positive obligation on employers to self-report to the FWO and even where employers self-report their conduct, the FWO’s default position is not always one of general acceptance. Instead some employers may face demands from the FWO that they enter into an enforceable undertaking, undertake training and audits and make contrition payments.  Most recently, public broadcaster ABC has agreed to make a contrition payment of $600,000 and enter into an enforceable undertaking with the FWO after self-reporting that it underpaid 1900 casual employees more than $12 million.

The FWO has a broad range of powers to investigate alleged contraventions of the Fair Work Act 2009 (Cth) (FW Act) and may issue fines and prosecute employers, as well as their directors and other advisers in some circumstances.

In response to the COVID-19 pandemic we have seen unprecedented changes to our industrial landscape including urgent temporary amendments to various modern awards, prolonged work-from-home arrangements, expedited applications to delay wage increases under enterprise agreements and increased employer flexibility through the JobKeeper amendments to the FW Act.

With these changes, employers must remain vigilant in ensuring their directions to employees remain consistent with the terms of any underpinning industrial agreement, as the risks of FWO action against an employer could threaten their viability, both financially and in terms of reputation.

In this article, we discuss the risk of increasing regulatory action of the FWO in the context of the COVID-19 crisis and beyond, and what steps employers should take if they discover contravening conduct.

COVID-19 industrial landscape

One of the most common causes of underpayments is the misinterpretation of modern awards.  For many, it is difficult to decipher the complex award system and easy to fall into simple errors that have a multiplier effect based on the number of employees affected and result in growing liability for an organisation over time. In the COVID-19 environment, this is further complicated by the various temporary amendments to provide increased flexibility under numerous modern awards, which were due to cease on 30 June 2020, but have now been extended with further variations, as reported by us here.

For example, as a result of the 2020 amendments to the Clerks-Private Sector Award 2010 (Clerks Award), employees engaged on either a part time or casual basis from home could be engaged or paid (respectively) for a minimum of 2 hours per shift.  While many of the variations under the Clerks Award have been extended to 30 September 2020, this particular requirement has reverted back to the pre-COVID-19 minimum where employees must be engaged or paid for at least 3 hours per shift.  Employers will need to re-adjust rostering practices and payroll systems to ensure casual employees, for example, are being paid for a minimum of 3 hours’ work on each engagement even if they are rostered to work for fewer than 3 hours.

Similarly, with the government restrictions starting to ease, employers are faced with heightened work, health and safety concerns in returning their employees to the workplace. As part of this process, SafeWork Australia suggests staggering employees’ start times to reduce the number of people gathering on public transport during peak hours. However many modern awards prescribe a set span of hours for relevant employees. As such, staggered work hours may not be able to be accommodated without triggering penalty payments.

FWO powers and penalties

Under the FW Act the FWO is given broad powers to monitor and investigate non-compliance with the FW Act’s provisions including to:

  • investigate non-compliance;
  • issue compliance notices to any person or entity to remedy identified contraventions and provide evidence of compliance;
  • issue infringement notices similar to on-the-spot fines;
  • allow the employer to enter into an enforceable undertaking (a binding agreement where the employer accepts the contravention, the steps they will take to rectify it and a commitment to implement additional compliance measures);
  • require attendance to training on compliance with applicable workplace laws;
  • order publication of a written public apology on social media channels and in mainstream media; and
  • commence proceedings to prosecute the employer and individuals involved and seek penalties.

The current maximum penalty per contravention of the FW Act for a body corporate is $63,000 or $630,000 for a ‘serious contravention.’  The Federal Court has recently imposed a record-high underpayment penalty on three Hero Sushi outlets, as reported previously by Hall & Wilcox.

The action(s) that may be taken against a company will depend on a number of factors including whether they have self-reported the contravention once becoming aware of it.  In the last 12 months, there has been a significant increase in the FWO’s use of compliance notices and enforceable undertakings for contravening employers, at a minimum.

Personal liability for executive staff

The obligation to comply with the National Employment Standards, modern awards and enterprise agreements, including obligations on minimum pay, is a civil remedy provision under the FW Act.  The contravention of such a provision not only exposes an employer to a large penalty but it may also result in any person involved in that contravention being treated as if they had contravened the provision.

In practice, a company has an obligation to investigate and rectify any discrepancies in their payrolls but in addition, any persons aware of or suspicious of the potential contravening conduct is also responsible for taking action.  This means that a director, manager, human resources consultant, external accountant or adviser, and other employees or agents could be deemed an accessory to the company’s contraventions of the FW Act.  If the claim is substantiated, the consequences may be penalties of up to $12,600 per contravention, or $126,000 for a ‘serious contravention.’

Board members should take an active role in ensuring compliance systems are in place and that their worker’s pay arrangements meet the minimum entitlements, act on any employee complaints or concerns immediately and speak out if something does not seem right.

We have previously reported on cases where directors and external advisors have been deemed accessorily liable for such contraventions, which can be found here and here.

Self-reporting contraventions: a double edged sword

There is no positive obligation on a person or entity to self-report contraventions of the FW Act or applicable enterprise agreement or modern award to the FWO. Notwithstanding this, self-reporting can have a real benefit.

Contrition can bolster employee and public trust in the business and reduce negative media scrutiny.  It also mitigates against the risk of prosecution and any action taken by the FWO, or if proceedings are commenced, can reduce the quantum of penalty ordered.

By comparison, where an employer is found to have been aware of contravening conduct and failed to report or take other corrective action, the FWO may pursue prosecution and press for greater penalties.

It must be noted however that self-reporting will not necessarily shield a business from FWO enforcement action or prosecution.  The FWO has indicated it will take a tough stance against underpayments regardless of any self-disclosure due to the need for general deterrence.

One downfall of self-disclosure is that an employer relinquishes control over how the investigation is managed (including its scope), how the contraventions are announced to affected employees, the public and the media, and what remedial action should be taken. Employers should be cognisant of the implications of self-disclosing before having investigated the extent and seriousness of any contraventions.

Where possible, employers should consider undertaking their own investigations under legal professional privilege to determine the full extent of the contraventions, value of any underpayments, and plan how and when the issues will be rectified prior to self-disclosing to the FWO.

Takeaways for employers

Employers can reduce the potential for liability by:

  • undertaking annual audits, including self-auditing of systems and by engaging external experts;
  • seeking advice early to ensure workers are classified correctly under any applicable modern award;
  • complying with time keeping practices;
  • ensuring any COVID-19 return to work safety plan is compliant with the requirements of any underlying industrial instrument;
  • reviewing annualised salary arrangements and actual hours worked to ensure they meet the minimum pay obligations in the underlying industrial instrument;
  • reviewing and improving payroll and compliance systems;
  • recruiting internal compliance officers where appropriate; and
  • ensuring all human resource and payroll staff are adequately trained.

Hall & Wilcox can assist in conducting training, providing advice on the interpretation and application of modern award provisions and, under the protection of legal professional privilege, assist in investigating the extent of any non-compliance and advising on remedying the deficiencies and self-reporting to the FWO.

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