If an employer is in breach of its obligations under the Fair Work Act and Modern Awards, what types of penalties could be imposed?
Can “individuals” associated with the employer also face penalties?
These matters were considered by the Federal Circuit Court in a recent decision in the matter of Ava Travel.
The Fair Work Ombudsman (FWO) brought a claim against a company and its director, relating to three employees.
The company had engaged the workers as coach drivers driving tourists around south east Queensland. The employees were paid a simple flat rate of $20.59 for all hours worked. Had they been paid in accordance with their relevant Modern Award, they would have been entitled to a number of other benefits including minimum engagement pay, loadings and penalty rates.
The employer later requested the drivers to obtain Australian Business Numbers, on the basis that they would be engaged in the future as independent contractors and continued to pay the same flat rate.
The employer’s director admitted that the employer had committed various contraventions of the Fair Work Act, in particular with respect to “sham” contracting arrangements, with the underpayment of wages and entitlements totaling approximately $44,000. The director also admitted that he was “involved” in those contraventions.
Before the proceedings in the matter commenced, the employer proposed a payment plan over six months to rectify the underpayments, and this was accepted by the FWO. This rectification occurred.
His Honour Judge Jarrett rejected the submission made on behalf of the FWO that by reason of the low skilled work undertaken by the workers and that English was their second language “the Respondents ought to have had a heightened awareness of the need to ensure proactive compliance with workplace relations obligations“. In particular, he considered that there was no evidence for example that the workers’ English language skills prevented them from properly communicating with his employer, understanding what was happening in terms of their employment or in any other way disadvantaged them.
The court also accepted that sham contracting contraventions had come about through clumsiness and inadvertence, rather than anything else, such as the employer deliberately attempting to sidestep its obligations under the Fair Work Act.
The court found that the underpayments were compounded by delay in payment of wages. The three workers each had to go without payments for months at a time, causing them to rely on credit cards to pay for food, bills, loans, school fees and household expenses.
While the court acknowledged that the respondents’ co-operation in the FWO’s investigation and in the proceedings was “fulsome and unqualified”, his Honour awarded a total penalty against the employer of $164,475, and against its director of $3,825.
Although every case turns on its own facts, what this case shows is that substantial civil penalties can be awarded against an employer, and those involved in contraventions of the Fair Work Act. In this case, it is interesting that even though the court found that:
- the contraventions were not compounded by an inability of the workers to understand English;
- the employer cooperated fully, and
- full restitution of underpayments was made,
the total of the penalties awarded still substantially exceeded the amount claimed in underpayment by the employees.
Employers therefore need to be vigilant to ensure that they are meeting their obligations under the Fair Work Act, and under Modern Awards in particular.