The penalties associated with underpayments can be imposed not just on local or branch managers but even to the company directors. Section 550 of the Fair Work Act deems that a person ‘involved’ in a breach of the Act is taken to have personally breached it, and is liable for payment of compensation and penalties.
Frozen yogurt chain Yogurberry was recently penalised $146,000 by the Federal Court for the underpayment of four migrant workers. The penalty was secured against the master franchisor, YBF Australia Pty Ltd, and the company director, who were both directly involved in setting pay rates and payroll practices at store level, for being an accessory to the breaches of an associated company.
Courts can take into account several factors when deciding on the penalties:
- Knowledge of or participation in conduct resulting in underpayment
- Lack of cooperation with the FWO
- History of non-compliance
- Vulnerability of workers (Visa-holders, young, etc.)
- Need for general deterrence (i.e., for the broader community)
- Need for specific deterrence (i.e., against involved individuals)
This mixture of intentional and unintentional employer behaviour is to ensure that there’s no exploitation in their networks. The Fair Work Ombudsman herself, Natalie James, said that “The result of this matter sends a clear warning to the operators of franchise networks in Australia that refusing to take responsibility for addressing exploitation in their networks is not a viable option.”
Several other cases further demonstrated that the “corporate veil” will not protect directors or HR managers who know or should have known of a breach:
- Brisbane cleaning company Brisclean Pty Ltd’s director was fined $126,000 by the Federal Circuit Court for four migrant workers who were paid $17 per hour under ‘sham contracting’ arrangements.
- A former company director and operations manager of supermarket chain Coles were both fined $94,050 each for the underpayment of trolley collectors.
- Crown Casino’s HR manager was found to have falsified employment records and made unlawful deductions from the wages of cleaners and was made personally liable for repayments plus fines of $10,800 per breach.
Companies can even be held liable for breaches within their supply chain, such as in the Coles case above in which the supermarket actually engaged a subcontractor to provide trolley collectors. This reinforces the need for businesses to ensure compliance throughout their supply arrangements.