On Friday 2 June 2023, the Fair Work Commission handed down its Annual Wage Review 2022-2023 decision, announcing a 5.75% increase to minimum wages prescribed by Modern Awards. Bearing in mind hyper-inflation and rising unemployment rates, the Commission has also increased the National Minimum Wage to $23.23 per hour from $21.38 per hour.
In the event that a business is a National System Employer, they have a statutory obligation to comply with the National Employment Standards and any applicable industrial instruments such as a Modern Award. Following the Annual Wage Review and introduction of the Fair Work (Secure Jobs, Better Pay) Act 2022, employers must be vigilant and undertake a workplace audit to ensure compliance, or otherwise be at risk of severe financial penalties.
Case Study: Fair Work Ombudsman v Chatime Australia
In a significant decision on directors’ liability for underpayments, a court has found that although the managing director of Chatime was unaware that the bubble-tea chain was in breach of workplace legislation, he had sufficient knowledge about his obligations under the applicable Modern Award to be considered “complicit”.
Facts
In 2013, the Chief Financial Officer prepared a presentation to the managing director and his co-founder showcasing two costing models. The first model that applied Award rates had added more than $850,000 to annual payroll. The latter model applied minimum award rates but removed bonuses and required payroll to be in cash, adding a mere $250,000 to annual payroll in comparison.
The latter model was applied and resulted in an underpayment of more than $160,000 over a four-month period in 2016.
Outcome
Judge Nicholas Manousaridis determined that the managing director, having absorbed the information presented by the CFO, had qualified as a “person involved” in admitted underpayments under section 550(2) of the Fair Work Act 2009 (Cth) (“FWA”).
Satisfied that the managing director had knowledge of the “essential elements” constituting a breach, the matter has been re-listed to determine the quantum of penalties for Chatime and the managing director respectively.
Legal Rationale
In order to ascertain liability under section 550(2), it must be determined whether:
“when taken with the decision [he] made, or joined in making, that Chatime implement Costing Model B instead of Costing Model A, the managing director knew he had decided not to commit Chatime to pay its employees the ‘casual rate’ or ‘weekend penalty rates’ under Costing Model A which were payable under the Award”.
In his judgement, Justice Manousaridis noted that although the managing director recalls little from the CFO’s presentation, the managing director’s decision to favour Costing Model B implied that he acquired sufficient knowledge of the contents of each Costing Model to assess their relative merits.
The managing director argued that he did not understand or “fully appreciate” exactly what an Award is, or what the ramifications would be for non-compliance. “It is, however, unnecessary to prove that [he] believed or knew that his conduct contravened section 45 of the FWA to not breach a term of the Modern Award, or that [he] believed that such conduct was unlawful”.
Key Takeaways
Section 45 of the Fair Work Act states that “a person must not contravene a term of a Modern Award”. Section 45, amongst other relevant sections are a civil remedy provision which allows the victims of the breach to apply for an order for a financial penalty against the alleged wrong-doer.
The application and enforcement of civil remedy provisions are most common in cases of underpayment and contraventions of an applicable Modern Award. Therefore, employers have a positive obligation to undertake a workplace audit to identify gaps in compliance and ensure that employment contracts, remuneration models and workplace policies are annually reviewed to maintain active compliance, particularly in the wake of the Commission’s Annual Wage Review.
Contact Chamberlains Law Firm to discuss your options for a workplace audit, HR planning advice and general HR advisory services.
This article was prepared with the assistance of Jasmin Mantoufeh.
If you have any questions or concerns please contact our Workplace Law Director Angela Backhouse on 02 6188 3600