The decision by the Federal Circuit Court to impose fines of almost $400,000 on a Sushi restaurant business and its operator are evidence that businesses who flout the law about minimum rates of pay will bear a substantial burden. In the recent decision of Judge Dowdy, fines of $383,616 were imposed on two companies that underpaid 31 workers more than $70,000 at three sushi restaurants in Newcastle and the Central Coast in 2016. A further fine of $63,936 was imposed on the owner of the business who was held to be involved in the underpayment.
The pressures of running a business can be immense. Unfortunately, a response of management has been to reduce wages to the barely legal, and often less than legal. Underpayment of wages is unfair not just to the workers who are not paid the minimum required rate, but also to other businesses who pay accordingly to law and suffer a competitive disadvantage.
This practice is increasingly known as wage theft and ranges from deliberate actions by unscrupulous employers to inadvertent mistakes arising from often complex obligations under industrial awards and the Fair Work Act.
A particular problem is the practice by principal contractors in industries such as cleaning and security, or engaging sub-contracting businesses at a rate which means that the subcontractor cannot afford to pay the minimum rate required by the law. A second common problem is the exploitation of workers on visas and who, at times, are working in contravention of their visa conditions.
The poor practices include deliberately paying wages lower than the minimum provided for by the relevant award, underpaying or denying penalty rates and superannuation, and illegally denying entitlements to leave. There is also evidence in some sectors of employers requiring workers to repay money earned by falsely claiming they have been overpaid.
Deliberate underpayment is not a new problem. However, recent instances reveal that underpayment is so widespread in certain industries as to constitute a veritable business model, particularly in those with high numbers of migrant workers. 7/11, for example, set up an internal panel to hear complaints about underpayments in its franchises following a high-profile media investigation in late 2015. At its height, the panel received 100 complaints a week with an average of $40,000 alleged to have been underpaid per person.
The franchise industry is a particular problem area, but it is not the only industry in which underpayment is rampant. Allegations of underpayment and even physical and verbal abuse are widespread in farming and agriculture where seasonal workers, often migrants, are physically isolated on properties for weeks at a time. The hospitality industry has also been exposed in high-profile cases of underpayment, like those in the Melbourne restaurant of celebrity chef George Calombaris.
The issue has implications across the labour market by making it harder for other businesses to keep wages high and potentially leading competitors to believe they will have to engage in underpayment in order to compete with businesses illegally paying people as little as $8 an hour.
What’s needed to fix the problem?
While criminal charges have been floated as one solution to tackle repeat offenders of deliberate underpayment, it is unclear if this would act as a significant deterrent given criminal charges would likely only ever attach to the most outrageous breaches of the law. More routine offenders might correctly expect that they would be unlikely to face criminal sanctions and do little to change their behaviour.
An arguably more effective strategy is to make the effects felt on the business. There is evidence that courts are beginning to do this. The decision in relation to the sushi restaurants is an important development.
However, to date, the larger fines have been imposed on smaller operators, with little being done in respect of larger companies. Tougher financial penalties including those imposed on individuals who are involved may be a solution.
What if I have been underpaid?
You are entitled to be paid fairly for your work. If you think you have been underpaid or have a right to pay for unused entitlements, you need to calculate the amount that is owing to you. This is often complex as it requires an understanding of contracts of employment, industrial awards and the Fair Work Act.
Trade unions are expert at assisting in this process. A good first step is to approach your union (and if you are not a member, join the Union) and ask for their assistance in ensuring that you are not being underpaid.
Lawyers, such as Segelov Taylor are also able to assist. We can provide guidance on the correct rate of pay, and where there has been an underpayment, provide advice and representation in recovering what is owed.
Segelov Taylor principal, David Taylor, is an accredited specialist in employment law. If you have concerns about underpayment in the workplace, please get in touch by email email@example.com or by phone (02) 8880 0500.