Recent penalties imposed by various courts have been significant even in cases where employers have seemingly made genuine errors and even in circumstances where the underpayments involved have been comparatively small. The judgements illustrate the need for vigilance by employers in ensuring that they are compliant with legislation and industrial instruments.

Fair Work Ombudsman v DZ Import & Export Trading Co & Anor

In this case, the Fair Work Ombudsman (FWO) prosecuted the director of a company that underpaid several of its employees. The Federal Magistrates Court considered that large penalties were appropriate in the circumstances because of the size of the underpayments, the fact that the employees involved were vulnerable (they were migrant workers) and because the employer had failed to rectify the matter.

While the total of the underpayments was about $21,000, the director and his company were fined an aggregate amount over $177,000.

Fair Work Ombudsman v Stewarts Transport & Logistics Pty Limited & Ors

Federal Magistrate Riley recently imposed over $60,000 in aggregate pecuniary penalties against an employer company and its two shareholders who had underpaid an employee by $3,000 over a period of three months.

The penalties related to several different offences including failure to pay correct casual loadings, penalty rates, shift allowances and inadequate record keeping. Each of the offences carried with it a separate penalty.

Fair Work Ombudsman v Computermark Pty Limited & Ors

The Magistrates Court of Victoria recently imposed penalties on a Fitzroy café operator who underpaid two casual employees by $8,736 collectively.

The cafe was fined a total of $120,800 in penalties – more than 13 times the actual amount of the underpayment.

How are these penalties determined and calculated?

In Mason v Harrington Corporation Pty Limited [2007] FMCA 7 (at paragraphs 24 to 55) Federal Magistrate Mowbray listed a number of factors that had been taken into consideration by the Federal Court in several different matters in determining a penalty. These were:

  • The nature and extent of the conduct
  • The circumstances in which the conduct took place
  • The nature and extent of any loss or damage
  • Whether there had been similar previous conduct by the respondent
  • Whether the breaches were properly distinct or arose out of one course of conduct
  • The size of the respondent company
  • The deliberateness of the breaches
  • The extent to which senior management was involved in the breach
  • The corporation's contrition, corrective action and co-operation with enforcement authorities
  • Deterrence.

Where there are multiple breaches for which penalties are to be imposed, the correct approach to imposing penalties is set out in various cases. Federal Magistrate Riley summarised the approach in the following steps:

  • Identify the separate contraventions involved
  • Consider what penalty is appropriate with reference to each of those contraventions
  • Examine the extent to which two or more contraventions have common elements as the defendants should not be penalised more than once for their actions
  • Consider the aggregate penalty to determine whether it is an appropriate response to the conduct which led to the breaches. This assessment is made by applying an 'instinctive synthesis' to make sure the penalty is not harsh or oppressive.

In circumstances where an employer is being investigated by the Workplace Ombudsman and they have fully co-operated with the investigation as well as corrected any errors and made back payments in a timely fashion, this may well mitigate against larger penalties.

Voluntary compliance and enforceable undertakings

In addition to fines, there are other implications that employers should be aware of in instances where they fail to comply with legislative and industrial requirements.

In July last year, Cotton On Clothing Pty Limited entered into an enforceable undertaking with the Fair Work Ombudsman whereby the company posted an apology on its Facebook wall, sent Human Resources Managers to workplace relations compliance training and also agreed to provide three consecutive annual reports on its active compliance. This was in addition to paying in excess of $330,000 in back pay to employees.

More recently, in January of this year, Toys R Us Pty Limited entered into an enforceable undertaking whereby it agreed to pay $998,000 in back pay to affected employees, provide those employees with letters of apology, send key personnel to relevant training and commit to paying for auditing by a relevant industry association to determine the company's ongoing compliance.

Further Information

When hiring anyone, an employer should be extremely careful to properly ascertain an employee's entitlements under legislation and under any applicable award.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.