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The Fair Work Ombudsman – Coming To A Workplace Near You!

Does your workplace pass the Fair Work Ombudsman's "Better-Off-Overall-Test"?

Underpayment of employees has been a focus of media attention in the past few months. The list of well-known names that have been in the news for the wrong reasons is impressive; first it was 7-Eleven, then came McDonald’s, and this past week we have also had Coles and other retailers under the spotlight.

Most embarrassingly for Coles, it mistakenly believed that having reached an agreement with the Shop, Distributive and Allied Employees Association (the relevant union for its retail workers) as to the pay rates and conditions of its workers, it was compliant with the Fair Work legislation. Unfortunately that was not the case with the Fair Work Commission recently finding that their workplace agreements failed the “Better Off Overall Test” (BOOT).

This follows on from a recent media investigation into the workplace agreement reached between McDonalds and the SDA which also alleges that it failed the BOOT to the tune of tens of millions of dollars. And of course there has been the ongoing revelations and investigations into the practices of 7-Eleven franchisees and head office.

Be warned though, if you think that your business is small enough to fly under the ever watchful radar of the Fair work Ombudsman, you may be in for a nasty surprise.

Typically the FWO receives complaints from former (and quite often current) disgruntled employees who have concerns with various aspects of their employment. They usually include such things as:

  • Incorrect wage rates
  • Under award payments
  • Non payment of overtime
  • Non payment of penalty rates
  • Under payment of termination and redundancy payments
  • Insufficient or lack of workplace records such as recording of hours worked
  • Insufficiently detailed, or lack of pay slips.
  • Non payment of superannuation entitlements

It is not unusual for these issues to be raised for the first time by the employee with the FWO and not directly with the employer. The first an employer may hear about an employee’s, or former employee’s grievance is a phone call, letter and visit from the FWO. Employers will be asked to respond to the allegations, provide their records for inspection by the FWO, and asked to participate in a mediation. And that’s just the start.

A common misconception amongst employers is that by paying their employees above award rates, they have complied with the BOOT. Typically, employers believe that they can request their workers to work additional hours over and above the 38 hour week whilst either not paying them penalty rates for those additional hours and/or not paying them at all.

To ensure that employers don’t fall foul of the relevant Modern award, they must work through a number of steps to determine if they pass the BOOT. Are the additional hours required to be worked reasonable? Notwithstanding the over award payment is the employee better off overall? Is there a clause in the employment agreement that addresses the issue of working additional hours and the payment, if any, to be received?

So what is the FWO? The Office of the Fair Work Ombudsman is a statutory office established under the Fair Work Act 2009 (section 696). The FWO is mandated to, among other things:

  • provide advice and disseminates information;
  • promote and monitor compliance with Commonwealth workplace laws;
  • investigates complaints;
  • inquire into, and investigate, any act or practice that may be contrary to Commonwealth workplace laws;
  • commence proceedings or make applications to enforce Commonwealth workplace laws and, where appropriate, seeks a penalty for contravention of Commonwealth workplace laws; and
  • represent workers who are, or might become, a party to proceeding

The Fair Work Ombudsman appoints Fair Work Inspectors empowered to investigate and enforce compliance with a range of workplace laws concerning such matters as:

  • minimum pay, terms and conditions of employment;
  • general protections, including workplace rights, freedom of association, discrimination, sham arrangements, coercion and undue influence;
  • employee records and pay slip requirements

The FWO’s last annual report (2014/2015) clearly set out how active the FWO has been in investigating workplaces. Some of the more sobering statistics include:

  • Recovery of more than $22,000,000 for workers through a combination of compliance, enforcement, dispute resolution and assessment;
  • Resolution of 25,000 workplace disputes;
  • Over 4500 education and compliance audits of Australian workplaces;
  • The issuing of nearly 350 infringement notices and nearly 120 compliance notices; and
  • The imposition of 42 enforceable undertakings and initiation of 50 litigations.

Given the above, it is in the interests of employers who find themselves being investigated by the FWO to of course co-operate and use their best endeavours to resolve the employee’s grievances. There are of course instances when many (and occasionally all) of the employee’s grievances are without foundation. In any event it is imperative that the employer engages an experienced advocate to deal with the FWO on their behalf and shield them as best as possible from the anxiety of dealing with the FWO.

If the dispute can not be resolved then the matter could escalate with the employee pursuing action in the Fair Work Commission, or the small claims court (Federal Circuit Court or local Magistrates Court). In instances where the FWO is of the view that there has been a serious breach of workplace laws, it can launch its own prosecution of an employer.

If the employer is a company, then not only the company but in certain instances the directors and other senior managers may also be prosecuted. Quite apart from being required to pay any outstanding entitlements (plus interest), employers will often find themselves the subject of orders to pay penalties which are far in excess of the actual unpaid entitlement of up to $10,800 per contravention for an individual and $54,000 per contravention for a body corporate. As recently as March of this year a penalty of $50,000 was imposed on a corporate employer and $10,000 on its director for underpayments to an employee and poor record keeping.

There are occasions where the FWO will also seek to impose enforceable undertakings on employers. The enforceable undertaking will usually include an acknowledgement by the employer of its failure to comply with its workplace obligations, an agreement to rectify the non-compliance, and a promise not to re-offend. A breach of the enforceable undertaking will result in further prosecution by the FWO.

Let’s not forget the naming and shaming by the FWO which publishes on its website successful prosecutions as well as a list of employers that have entered into enforceable undertakings. This is usually accompanied by a media release from the FWO (which is helpfully reproduced on its website) outlining the non-compliance of the employers in great detail.

But of course, we all know prevention is better than the cure.

Given the powers of the FWO and the maze of modern awards and employee entitlements it’s important to ensure that employers are compliant with their statutory obligations. If you are a start up, you should obtain advice on such matters as:

  • Having proper employment agreements in place
  • Identifying the correct Modern Award and classifications that will cover your workplace
  • Identifying the correct wage rate
  • Understanding obligations as to payment for additional hours (overtime) and appropriate penalty rates
  • Record keeping requirements
  • Pay-slip requirements
  • Workplace policies and procedures
  • Employee leave entitlements

For established businesses it wouldn’t hurt to review the above as well as obtain advice for such matters as termination and redundancy entitlements, protection of business goodwill and intellectual property.

As we have seen with the recent publicity concerning Coles, assuming that your workplace agreements are compliant with your workplace statutory obligations is fraught with danger notwithstanding your workers (and in Coles case the union) were in agreement. All it takes is one employee to refer the matter to the FWO (or indeed the Fair Work Commission) for your workplace to become the subject of investigation, prosecution and enforcement.

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About the author

George Spiliotis
Managing Principal

Practicing for over 30 years, George affords clients the breadth and depth of his knowledge in commercial litigation, dispute resolution and employment law. George is reputed for his pragmatic approach to commercial litigation and dispute resolution. He always has his client’s interests at heart and works diligently to achieve their optimal commercial and legal outcome without litigation when...

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