By Zeb Holmes and Ugur Nedim
A recent decision by the Fair Work Ombudsman (FWO) highlights the leniency that is frequently afforded to employers who illegally underpay their employees.
Former CDPP prosecutor Robert Corr highlights the fact that it is rare for bosses who rip-off their workers to be criminally prosecuted or even subjected to civil litigation or a complaint, which is in stark contrast to the treatment of employees who are suspected of fraud, larceny as a servant and embezzlement.
On 25 May 2017, the FWO issued a media release concerning the initiation of proceedings in the Federal Circuit Court against JPA Manchester Pty Ltd, which trades as ‘Benson Australia’ in retail outlets throughout Sydney, and online.
The company was alleged to have underpaid an employee in the sum of $60,000 over a four-year period. The employee was a Chinese immigrant who had worked at the company’s Redfern and Miranda stores. He was paid at a flat rate of $9 an hour, despite being entitled to an award rate of $18.99 for ordinary hours.
The company also allegedly failed to pay annual leave entitlements, and doctored pay slips and accounts to avoid detection.
This is not the only time JPA Manchester has fallen foul of the law by underpaying employees.
The owner of the company, Mr Jia Ping Ou, publicly committed to revamping the company’s workplace practices after underpaying another Sydney employee more than $27,000 between 2010 and 2014, paying her as little as $8 an hour.
“It is completely unacceptable to continue to allegedly blatantly underpay an employee after being put on notice to comply,” Fair Work Ombudsman Natalie James remarked in the most recent decision.
Despite the conduct, JPA Manchester was merely ordered to pay outstanding entitlements, accept an audit at the direction of the FWO and commit to retraining managerial staff.
In light of the lenient penalty, Mr Corr posed the following scenario:
“Imagine if a worker illegally kept $30,000 and then $60,000 of their boss’ money”, adding that he or she would likely face criminal prosecution for one or more offences.
A recent report by the University of Melbourne found that only a small percentage of businesses, mostly small businesses, changed their workplace practices as a result of the risk of specific regulatory activities by the Fair Work Ombudsman. The report noted that most businesses thought the risk of getting caught for underpaying workers was “highly unlikely”, “unlikely”, or “50/50” at best.
This means employers perceive the risk of being called to account for ripping off worker as negligible.
“When the risk is seen as better than a coin toss, and there’s no danger of a real prosecution, is it any wonder that wage rip-offs are widespread?”, Mr Corr asks.
Illegal exploitation of workers is prevalent
According to the FWO’s annual report, the agency audited more than 4530 businesses in 2015-16, finding that more than one-third had committed “monetary contraventions”.
Over the past two years, a number of the country’s biggest and best-known retail and hospitality companies have been exposed as underpaying young and foreign workers. The companies include Coles-Myer, Woolworths, McDonald’s, 7-Eleven, Caltex, Bakers Delight and Costco.
7-Eleven, for example, has been ordered to repay workers $59 million, after systematically underpaying its employees.
Civil liability fails to act as a deterrent
The existing regime is clearly failing to deter rogue employers from shirking their legal obligations.
In one example, an Adelaide company was fined $196,000 by the Federal Court after underpaying 46 of its employees by more than $2.5 million. Many of the employees were over 60 years of age, and were not paid the relevant wages, casual loadings, penalty rates or annual leave entitlements.
The company had continued to engage in this conduct despite threats of civil action, and many believe employers must be criminally prosecuted if there is to be any chance of deterring such misconduct.
The FWO’s Litigation Policy states that matters should be referred to the CDPP for potential criminal prosecution where a relevant breach has occurred.
However, the last time a criminal prosecution was mentioned in a FWO annual report was in 2008. This may be due to the fact that it is often difficult to prove that an employer has engaged in conduct amounting to fraud, as the offence requires proof beyond reasonable doubt of both “dishonesty” and “deception”. The situation has led to calls for a specific criminal offence to be enacted in respect of underpaying employees.
According Mr Corr, “Until the Ombudsman toughens up, and starts to take real action against recidivist and criminal employers, a significant minority of Australia’s business community will continue to see the illegal exploitation of workers as a risk worth taking.”