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Ignorance is no defence

May 08, 2017

by Alex Millman and Troy Wild, NRA Legal

Sometimes, ignorance of the law is the only excuse an employer can provide in their defence. Unfortunately, as we all know, ignorance is no defence.

In recent years we have seen increasing exasperation from the courts when an employer contravenes an Award by underpaying staff, with fines for these contraventions reaching nearly five times the value of the underpayment itself in some cases. In face of such judicial censure, the need to ensure compliance has never been greater.

The major problem facing employers is that not all underpayments happen deliberately. Some happen purely by accident. This is particularly so in small businesses where the workforce is more mutable and structures less rigid, and with the upcoming Vulnerable Workers Bill set to pass Parliament, franchisors and holding companies will no longer be able to hide from liability.

Let’s examine some situations where employers have ended up in hot water for want of compliance.

‘Full-time’ employee working part-time hours

It is imperative to ensure that as an employer you are clear on what your staffing requirements are, and hire accordingly.

If a person is engaged as a ‘full-time’ employee (that is, 38 hours per week) but works less than those hours, you may still be required to pay the employee for the full 38 hours even if they do not work them.

Zanoni v MFT Holdings [2013] FCCA 1593 considered this situation for an employee who was engaged as a full-time employee but only worked an average of 33 hours per week.

The Court held that even though the employee only worked 33 hours each week, because she was engaged as a full-time employee she was entitled to be provided with, and paid for, 38 hours of work each week.

That the employer did not have 38 hours of work to provide the employee each week was something the employer ought to have considered when determining whether it wanted to engage staff on a full-time basis.

The employer was ordered to pay $10,490.80 (gross) in back-pay to the employee. Only because the matter was brought as a ‘small claim’ did the employer avoid the imposition of a fine.

Classification creep

Something that appears more in small businesses in the concept of ‘classification creep’.

This is where an employee starts work as a Level 1 employee under direct supervision, but as they become more and more experienced become a more independent operator, perhaps even taking on supervisory duties themselves.

Take for example an employee at a small grocery shop who starts as a Level 1 employee under the General Retail Industry Award 2010. There is no argument that at commencement the employee is a Level 1 employee.

After several months of service, the employer decides that this employee can be trusted to work more independently, and lets the employee open the shop in the morning before the employer themselves arrives. Both parties consider this a sign of the developing personal trust between the employer and the employee, so there are no formal conversations about it.

Unfortunately for the employer, this takes the employee from being a Level 1 employee to being, arguably, a Level 3 employee under the General Retail Industry Award 2010. For a full-time employee this is a jump in pay of $30.00 per week.

Whilst this may not seem like much, if this arrangement persists for an extended period without the employee’s classification being reviewed, the amount of underpayment is simply going to continue to accrue.

As failing to pay a person the correct rate of pay according their classification is a breach of the award, such a situation can also render an employer liable for fines if the matter is brought before a court.

This situation was considered by the Court in Fair Work Ombudsman v Soleimani & Anor [2014] FCCA 2380 in which the employee’s performance of “opening and closing of premises and associated security” caused her to be a Level 3 employee rather than the Level 1 employee that she had been presumed to be.

On top of an underpayment of $56,837.67, the individual sole-trader employers were fined $19,805.00 each. The size of the fine was limited by the fact that the employer was a sole-trader rather than a company; had this not been the case, an additional higher fine against the corporate entity would likely have been imposed.

Impact of the Vulnerable Workers Bill

The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (the Vulnerable Workers Bill), while brought about in reaction to repeated cases of exploitation of migrant workers, covers all workers rather than just that particular class.

As such, if a franchisee engages in conduct such as that described above, the franchisor or holding company may also be held liable, and subject to significantly increased penalties, for the mistakes of their franchisees or subsidiaries.

As such it is vital to the stability of all businesses to ensure compliance with the requirements of the modern awards.

For assistance in understanding your obligations under the Modern Awards or the Fair Work Act, contact the National Retail Association Hotline and speak to one of our Workplace Advisors on 1800 RETAIL (1800 738 245).

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