Ensuring staff are paid correctly is always an important issue, and one that deserves reflection on a regular basis. If you don’t pay staff properly, it could cost.

Awards determine the minimum terms and conditions for employees, and thus the legal framework for their employment. In Fair Work Ombudsman v Zillion Zenith International Pty Ltd & Anor [2014] FCCA 433 looked at systematic and deliberate underpayment of young workers and made some interesting comments.

The Federal Circuit Court of Australia ordered two franchisees of La Porchetta restaurant to pay fines of $167,409 each after failing to pay employees (young employees at that) their correct pay and entitlements, and instead supplemented payment with free or discounted pizza and soft drinks.

The facts

La Porchetta is a pizza and pasta restaurant chain with over 70 stores throughout Australia and New Zealand. Ruby Chand (‘Mr Chand’) and his two companies, Zillion Zenith International Pty Ltd (‘Zillion Zenith’) and Bound For Glory Enterprises Pty Ltd (‘Bound For Glory’) run the Pakenham and Berwick restaurants of La Porchetta, both located in Melbourne.

Between 2009 and 2012 a total of 111 employees of Zillion Zenith and Bound For Glory were underpaid a total of $258,000. These employees were mainly teenagers working in their first job. The employees performed work as apprentice cooks, full and part time trainees and other junior staff.

Following an investigation by the Fair Work Ombudsman, Mr Chand, Zillion Zenith and Bound For Glory accepted that they had not paid the correct minimum rates of pay, had not paid casual loadings to casual employees, annual and personal leave was not accrued for full and part time employees or paid on termination. Superannuation was not paid and accurate employment records were definitely not kept.

The employers faced financial difficulties and in order to overcome them partly paid the wages of the employees with “free food and drink that cost… more than the underpaid wages”.

It is absolutely clear that wages cannot be offset by free food or cheap food or other products or merchandise. Employees must be paid in full under the provisions of the Fair Work Act.

The decision

Judge O’Sullivan said that the behaviour displayed by Mr Chand and his companies “belongs in the dark ages rather than twenty first century Australia.”

Mr Chand was fined $55,803 in his personal capacity, with Zillion Zenith and Bound For Glory both receiving fines of $139,507.50 for its actions. The companies were also ordered to repay more than $79,000 in outstanding entitlements to employees who had not yet been reimbursed.

The judge highlighted the vulnerability that workers in the hospitality industry face:

“It has been repeatedly identified that there is a significant risk of underpayments and breaches of workplace legislation in the restaurant and hospitality industry where vulnerable employees … are employed. This case is yet another example that the risk continues to exist.”

Following the decision, the Fair Work Ombudsman announced that employees at La Porchetta restaurants across Australia would have their pay packets reviewed to ensure they were receiving their full entitlements. Additionally, La Porchetta Franchising entered into a Proactive Compliance Deed with the Fair Work Ombudsman and agreed to provide new franchisees with employee induction training and information covering key aspects of workplace laws.

This case demonstrates to employers that underpaying staff will not be tolerated by the Fair Work Ombudsman. Small to medium size businesses must have a developed understanding of their obligations to pay minimum employee entitlements and comply with workplace laws otherwise they could face severe financial consequences.

In terms of the need to ensure compliance with minimum standards of employee entitlements, it was determined that the minimum standards were not observed or heeded by the respondents. Compliance with minimum standards is vital to creating an even playing field for employers within the same industry.

The Court said:

“The amounts involved may seem trifling to some but they were required to be paid to young employees for whom they were far from trifling and for which they’ve had to wait.”

“I am satisfied that the conduct engaged in by the respondents was part of a systematic business practice. In the situation where the respondents were receiving subsidies or benefits for engaging apprentices and trainees, and have admitted still not making sure that those same employees received their minimum entitlements, the irresistible inference was the conduct engaged in was part of a deliberate course of conduct by the respondents as to how the business (if it could be called that) was run.”

Ignorance is no excuse. This liability extends from owners of business’ to those that have responsibility to ensure the wages are paid correctly. So, senior managers, accountants and advisers are also liable if they either give the wrong information negligently or if they are complicit in the underpayment of wages.

With more award changes coming, it ‘pays’ to stay on top of the issues raised above.