Beware: Heavy penalties for underpayment of employees

The Fair Work Ombudsman (‘FWO’) recently secured its largest penalty against a 7-Eleven franchise which “systematically exploited its employees” and manipulated financial data in order to deceive payroll processes. The investigation into the franchise was conducted as part of an ‘audit campaign’ by the Office of the FWO into the employment practices of 7-Eleven stores generally.

The investigation revealed that the franchisee had refused to pay its employees according to the General Retail Industry Award¸ which governed their employment. Instead, the franchisee had deliberately disregarded employee entitlements and rights.

Further investigation revealed a sophisticated system of data manipulation and false record keeping, designed to protect the various underpayments from being discovered.

The total value of the underpayments was estimated at $82,000 affecting 12 employees.

Furthermore, the FWO found that the franchisee secretly demanded the employees to return thousands of dollars of back pay, that was intended to rectify a small amount of the substantial underpayment.

Judge Jarrett ruled that significant penalties should be imposed on the respondents because of the serious nature of their conduct.

Both Respondents admitted to the following contraventions:

  • Knowingly applying rates of pay below the lawful minimums;
  • Entering inaccurate data into the company’s payroll system;
  • Knowingly providing false records to the FWO; and
  • Accepting back payment amounts that were intended as rectification for the contraventions.

The Judge fined both Mr Mai, the owner of the store, and Mr Lo, the operator of the store, $425,363 and $85,073 respectively. This serious financial penalty, which stands at 75% of the maximum penalty, was awarded due to the Respondents “contemptuous disregard” for Australian workplace laws, demonstrated by their “systematic exploitation of employees” and “persistent attempts” to deceive Fair Work Inspectors.”

Finally, Judge Jarrett hoped that this penalty would act as a general deterrent to this type of conduct in the retail industry, and more specifically in the 7-Eleven franchise network, which claims it has paid $700,000 to 21 underpaid employees since it moved its rectification process in-house.

If you would like more information about issues relating to underpayments please don’t hesitate to contact Nick Stevens, Megan Cant or Jane Murray.

Published July 2016

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