Underpayment of wages – “We have never had an issue before, so there is no need to worry about it” this is a standard line used by many employers and clients of NB Lawyers – lawyers for employers. It is very easy of course to ask for advice as a reaction to being sued by a former employee, investigated by the Fair Work Ombudsman or receiving a letter of demand. It is harder to take on preventive action advice when there hasn’t been a problem in the past. Potential underpayment of wages is one such issue that rears its head in many industries such as hospitality, retail and franchises and a certain Masterchef judge has experienced it’s wrath.
Masterchef – George Calombaris
The most public and recent issue of underpayment of wages is the one which now encapsulates (now former) MasterChef judge George Calombaris who is also a founder and current shareholder of Made Establishment Group (Made). Made is behind a number of restaurants including Kew, Brunswick and the now closed Press Club. As of the time of writing Calombaris and Made have now entered into a Court Enforceable undertaking with the Fair Work Ombudsman to make a $200,000 contrition payment to the Commonwealth Government’s Consolidated Revenue solely to fund further external auditing of Made until 2022.
What has now become clear is that an investigation by the Fair Work Ombudsman has found that there is a staggering $7.8 Million in underpayment of wages payable by Made. This is a significant underpayment and comes from a combination of:
- Missed overtime pay;
- Non payment of penalty rates (or at least missed penalty rates);
- Incorrect award interpretation leading to misclassification of wage levels.
The public condemnation of Calombaris has already led to potentially some of the reason why his contract was not renewed with Channel Ten for the tv show masterchef (although one suspects that his increased wage demands may have also led to his “axing”). It has also given the digital union Hospo Voice, backed by United Voice a clear and remarkable cornerstone to launch campaigns for membership drives in the hospitality industry.
The Calombaris underpayment also led to the Fair Work Ombudsman releasing a press release saying they were conducting a snap audit into West End, Brisbane cafes and restaurants. The Fair Work Ombudsman were looking into particular practices which may well be breaches of the modern award such as:
- Non payment of overtime;
- Reduced or non existent penalty rates;
- Non-payment of minimum wages.
For an organisation like Made the steps they are now taking need to be quite public and understandably grand in scale and this has included the hiring of a CEO, CFO, HR and internal auditors. In addition, Calombaris has also undertaken to perform public speaking education sessions with other restaurant owners about workplace compliance.
What about others?
Chatime a popular bubble tea store and franchise recently faced underpayment of wages allegations of up to $10 Million and although these allegations were undertaken by way of an investigative report. This report led to the Fair Work Ombudsman taking a particular interest in the franchisees of Chatime, 2 such franchisees are facing significant personal penalties.
Some of the issues included:
- Generally low flat rates of between $13 to $18.55 an hour – much lower than the award;
- Non payment of public holiday penalty rates;
- Non payment or recognition of casual loading;
- Non payment of special clothing allowances.
“We never had an issue before”
For Employers especially those with lower margins or volume based business need to start thinking much sooner rather than later about employee and payment model they currently have in place. When starting off like Made it is understandable to get caught up in the innovation and growth of the business. As the business grows recognition of certain basic financial employment law principles need to be adhered to and considered:
- What award are applicable to my employees?
- Are any other industrial instruments applicable or potentially useful – EBAs, IFAs or other awards?
- Have you interpreted the award correctly?
- Have you correctly classified employees under the award?
- What does overtime, penalty rates and allowances do to my margins and bottom line? Will you need to redo your budgets, pricing and rosters to ensure compliance with wage payments?
- Are you keeping correct records – is your bookkeeper or/and accountant or CFO assisting you with this? ‘
It might be difficult and downright painful however Made and Chatime has showed us that the Fair Work Ombudsman, Union and even media outlets are aware that underpayment of wages especially of those on lower pay brackets are stories that get a lot of playtime. Social media and the 24 hour news cycle in particular ensures these types of stories are hyped up and have far reaching consequences.
As an example, would Calombaris be in a better negotiating position to bargain for an increase and renewal of his contract with Channel Ten had it not been for the scandal with Made. We don’t know the exact answer – however public opinion, at least seems to think this played a part.
Keep in mind, if there are breaches of the award or Fair Work Act 2009 due to underpayment of wages the company will be liable for backpayment as well as penalties of up to $63,000 per breach. Significantly, individuals involved in the breach such as directors, owners and managers, and internal accounts teams could also be liable for penalties of up to $12,600 per breach.
If you wish to review or audit your payment arrangements and ensure workplace law compliance, NB Lawyers can offer an obligation free consultation to discuss how we can assist you with any concerns you may have
Jonathan leads a team of handpicked experts in the areas of employment law and commercial law who focus on educating clients to avoid headaches, deal with problems before they fester and when action needs to be taken or a mistake is made mitigate risk and liability.