Michaela Moloney, John Monroe and Nikita Scott from K&L Gates' employment law group dive into the recent wage scandals and provide tips to make sure you know what to do.
UNDERSTANDING YOUR OBLIGATIONS
The recent prominence of these matters has brought into sharp focus the difficulty businesses are having in understanding the modern awards and entitlements which apply to their employees. Notwithstanding that the system is already significantly simpler than it was a decade ago, Fair Work Commission President Justice Ross has recently described the language used in modern awards as "torturous".
The General Retail Industry Award, which most commonly governs entitlements in the retail space, provides for six classifications of employees, varying rates of pay, annual leave loading, higher duties rates, overtime payments and penalty rates. It seems that many employers have struggled to keep track of these entitlements or understand when these may apply.
For example, this July, menswear retailer MJ Bale discovered it had underpaid staff, and back paid around half a million dollars in wages, interest and superannuation.
Matt Jensen, Founder and CEO of MJ Bale, has since called for an overhaul of the General Retail Industry Award.
Jensen maintains that the underpayments were inadvertent and a reflection of the complex nature of the award, pointing to requirements around higher duties and overtime that are particularly difficult to understand and keep track of.
Jensen cited, for example, that the company had not understood that casual staff are entitled to higher rates of pay if directed to open or close a store, which had contributed to its underpayment of wages.
Another retailer to fall victim to the complexity of workplace laws is jewellery retailer Michael Hill. Following an internal audit instigated by Michael Hill's new CEO, the company realised it had been misapplying the General Retail Industry Award for six years.
Michael Hill, employer of around 2,000 people in its Australian stores, will need to compensate its employees up to $25 million in underpaid wages accumulated over those six years. An investigation by external auditors will now take place in order to ascertain exactly what is owed and to review employee contracts and rostering practices. The company anticipates this will take several months.
The Fair Work Ombudsman was not contacted by Michael Hill directly, but has publicly stated that they will be contacting Michael Hill and have expressed concerns over the large scale of the reported underpayments.
Retail giant Super Retail Group has also seen the serious consequences of underpayments. The company self-reported to the Ombudsman when it first discovered that around 3,000 current and former employees had been underpaid in 2018.
The severity of Super Retail Group's underpayments came to light as a result of an internal review the company undertook after it realised it had been mistakenly underpaying workers setting up new stores and had not applied penalty rates and other allowances to overtime hours employees had worked.
Super Retail Group has since been continuing to engage with the Ombudsman following the results of its investigation that revealed the company owed $32 million in underpaid wages and $11 million in compensatory interest and payroll tax.
The Fair Work Ombudsman, Sandra Parker, has sympathised that workplace laws are not "light reading" and that small businesses may struggle to ascertain their responsibilities.
However, the Ombudsman places greater expectations on larger, higher-profile organisations to understand and comply with their obligations, and is unlikely to consider the response of "honest mistake".
MORE FORCEFUL COMPLIANCE
The Ombudsman has pledged to be forceful with compliance moving into the new financial year and to send a strong message of deterrence to those who contravene workplace laws.
Parker has made it clear that it is not enough for a business to admit to wage underpayments, back pay employees and then expect to move on without consequences. The new default position of the Fair Work Ombudsman is to:
Require an employer who has underpaid employees to provide an enforceable undertaking.
Require the employer meet the cost of having their underpayments verified by experts contracted to the Fair Work Ombudsman, to ensure that taxpayers are not burdened with the cost of calculating the amount that is owed to employees.
Publicly name and shame employers who underpay workers or deprive workers of their entitlements.
Recent amendments to the compliance system to support this approach include:
The announcement in the Federal budget of an additional $9.2 million in funding for the Ombudsman over four years to combat non-compliance with workplace laws.
Amendments to the Fair Work Act in 2017, which imposed higher penalties for "serious contraventions", or up to $126,000 for individuals and $630,000 for companies, which is 10 times higher than the previous maximum under the Act.
These amendments have been followed by prominent calls to criminalise so-called "wage theft". Prime Minister Scott Morrison recently revealed that the Attorney-General is drafting laws to criminalise worker exploitation. Victoria is so far the only State planning to criminalise wage underpayments, and is beginning to consult with workers, unions, employers, community legal centres and academics.
Concerns have been raised that such a law risks criminalising honest mistakes by employers, that they are ready and willing to fix. On the other hand, Allan Fels, who was the Chair of the taskforce into 7-Eleven underpayments, says that honest mistakes which are promptly corrected will not be caught within the proposed new law, however it remains to be seen how such a carve out would apply.
GET YOUR HOUSE IN ORDER
In an effort to improve employers' understanding of their obligations, the Fair Work Ombudsman intends to simplify compliance notices; the notices issued by Fair Work Inspectors requiring an employer to fix a breach of a workplace law. However, if employers fail to comply with the notices, the Ombudsman will not hesitate to seek penalties in court.
For those retailers issued with a compliance notice, the Ombudsman has warned they had better "get their house in order".
Retailers appear to be pre-emptively adhering to this advice, with discovery and compensation of underpayments often following internal audits into company procedures.
With the increased scrutiny of the Fair Work Ombudsman and the promise of tougher penalties for those contravening workplace laws, retailers need to be fully aware of their obligations under the General Retail Industry Award, and any others that might apply to their employees.
The Fair Work Ombudsman publishes a Pay Guide for the General Retail Industry Award outlining rates of pay for different kinds of employees, and detailed information about the definition and operation of allowances, penalties and overtime can be found in the award itself.
Where companies are unsure about their obligations they should seek advice from a legal adviser, or the Ombudsman, early in order to avoid potential penalties down the line.
For more information about the matters discussed in this article please contact Michaela Moloney, Partner at K&L Gates (email Michaela.Moloney@klgates.com.au). This article is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.