Hero Sushi the Villain in ‘Fraud’ and Wage Underpayment Scandal

Restaurant chain, Hero Sushi has been fined a record total of $891,000 for deliberate underpayment of staff and attempting to cover up the underpayments by creating fraudulent documents.

“The Most Significant Decision”

Hero Sushi’s actions were compared to “fraud” by Federal Court judge Geoffrey Flick for its repeated attempts to conceal underpayments totalling $700,000 at three different stores. The Fair Work Ombudsman (FWO) called the case the “most significant to be placed before the courts” in terms of the fraudulent documentation.

Hero Sushi provided hundreds of falsified payroll documents to the FWO on nine separate occasions during their investigation, in an attempt to claim that staff had been paid correctly. Justice Flick noted “The time and effort consumed in creating such false documents must have been considerable”. 

Eventually, a payroll manager admitted the payroll documents were “reverse-engineered”.

Record Fines

The three sushi outlets were fined $600,000 in penalties, their two owners/directors $85,000 each, the company’s accounts manager $75,000, and two other payroll officers a total of $46,000. Particularly significant in this decision is that personal fines and penalties were handed down on both owners and officers of Hero Sushi.

Justice Flick stated that he “may well have imposed considerably higher penalties”, and had “considerable misgivings” that the penalties were not even greater, but he ultimately deferred the financial penalty to the FWO’s expertise in these matters. The maximum fine for such contraventions is almost $2 million.

Further Penalties

In addition to the fines, Justice Flick ordered that notices be prominently displayed at the three stores showing details about the court case, award entitlements and the FWO’s ‘Record My Hours’ app. The owners were also ordered to conduct a six-month independent audit and provide the results to the FWO.

The Underpayments

Hero Sushi was eventually found to have been paying staff as little as $12 per hour, well below the minimum wage of $19.49 per hour. A total of 94 employees had not been paid minimum hourly rates, casual loadings, weekend or public holiday penalty rates, annual leave or superannuation. Many of the employees were young overseas workers on international student and working holiday visas.

Fair Work Ombudsman v HSCC Pty Ltd [2020] FCA 655

Takeaway for Employers – Record-Keeping Obligations

This case clearly demonstrates that attempting to falsify pay records to rectify an FWO investigation into staff underpayments is most likely futile and incredibly ill-advised. However, while most employers may not resort to fraud, many businesses may still fail their record-keeping obligations unintentionally.

Annualised Salary Obligations

A prime example could be unintentionally failing to comply with the new and onerous record-keeping requirements for annualised salary arrangements. These obligations were introduced to combat the wave of underpayment cases in recent years. Many of those underpayments were often as a result of annualised salaries.

Just some of the new requirements include keeping track of an employee’s specific start and finish times including unpaid breaks. The records must be signed by each employee to confirm their accuracy. Annual reconciliations must also be made between the employer and employee to ensure the annualised salary arrangement is paying the employee at the correct award rate. However, the above examples are not even the bare minimum under the new requirements, which include further payment obligations and notice obligations.

The new annualised salary provisions have been in force since 1 March 2020. Employers must comply with these record-keeping provisions or face investigation by the FWO and potentially severe penalties.

If you have any question about record-keeping obligations, the new annualised salary requirements and/or potential wage underpayments, please do not hesitate to contact Nick Stevens or Jane Murray.