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Are Your Casual Employees Actually Casual: Examining A New Federal Court Decision and What It Means For Australia’s Casual Workforce?

Many employers engage casual employees who are often longstanding members of their workforce and/or work a regular pattern of hours. However, are these employees really engaged on a casual basis? This has been a vexed issue for some time and for legal questions such as access to the unfair dismissal jurisdiction and long service leave entitlements it has been recognised that casual employees who work regular and systematic hours, are to be treated in the same way as permanent employees. However, it has always been accepted that if casuals are paid a casual loading, they are not entitled to paid leave.

This specific issue was considered last year in WorkPac Pty Ltd v Skene [2018] FCAFC (“Skene”) (refer to our previous article on this case). The decision held that an employee who was described as a casual but worked a regular roster set a year in advance was in fact a permanent employee. Consequently, the Court ordered in Skene that the employee was entitled to annual leave under both the National Employment Standards and the enterprise agreement which applied to his employment. In Skene, it was found that a true casual employee must have no firm advance commitment as to the duration of their employment or the days worked. However, the decision left open the ability for an employer to ‘set off’ the liability for leave or other benefits against the casual loading where such a loading is clearly expressed and the loading was received by the employee.

Interestingly, WorkPac chose not to appeal this decision but instead commenced proceedings relating to a claim by another employee – WorkPac Pty Ltd v Rossato [2020] FCAFC 84 (“Rossato”).

In the proceedings, WorkPac sought declarations that an employee, Mr Robert Rossato was a casual employee and therefore not entitled to be paid annual, personal and compassionate leave and public holiday entitlements. Specifically, WorkPac attempted to distinguish Rossato’s circumstances from Skene by demonstrating that there was no firm advance commitment as to the duration of the employee’s employment or the days/hours the employee will work. In addition, and in the alternative, WorkPac argued that even if Rossato was deemed to be a permanent employee, WorkPac could ‘set off’ the casual loading Rossato received. In other words, if Rossato was in fact entitled to the benefits received by permanent employees, he had already been paid for those benefits.

By way of background, Mr Rossato was engaged by WorkPac under 6 separate casual contracts of employment (at various locations) over the course of 3.5 years. The contracts of employment identified Mr Rossato as a casual employee and referred to the payment of a casual loading being incorporated into Mr Rossato’s flat rate of pay. The contract stipulated that the casual loading of 25% was in lieu of entitlements to annual leave, personal leave under the Fair Work Act 2009 (Cth) or its specific enterprise agreement.

The Full Federal Court unanimously found Rossato, like Skene, should have been treated as a permanent employee. The Full Bench adopted and endorsed the principles of the Skene decision. It was held that the parties’ description of the engagement as casual in a written contract is not determinative of the question of true legal characterisation, and consideration of the features of the relationship is required. For instance: a casual employee should have no firm advance commitment from the employer to continuing and indefinite work, the employee should have irregular work patterns, uncertainty, intermittency of work and unpredictability.

In addition, all Judges noted that post-contractual conduct could vary the nature of the engagement. For instance, the engagement might transition from casual to permanent at some point in time, based on the subsequent conduct of the parties.

As a result of finding Mr Rossato was in fact a permanent employee, WorkPac was required to backpay Mr Rossato unpaid annual leave, personal leave, compassionate leave and public holiday entitlements, notwithstanding that Mr Rossato was paid a casual loading in lieu of such entitlements.

In response, WorkPac pressed their argument that it should be able to set-off the casual loading it had paid to Mr Rossato against the unpaid entitlements. The Full Federal Court rejected this argument and found that the contracts were not sufficiently worded to give an option for contractual set-off. In addition, it was noted that paying a casual loading was not a substitute for the absence of a right to enjoy the entitlement to paid leave.

In addition, WorkPac sought to recover the casual loading it had paid to Mr Rossato on the basis that the loading was paid in error, if the Court ultimately found Mr Rossato to be a permanent employee. Again, this was also rejected. Justices Bromberg and Wheelahan both found that WorkPac agreed to pay the casual loading in its contract and accordingly “assumed the risk” that the flat hourly rate satisfied its statutory obligations.

Going forward

Ultimately, the Full Federal Court decision clarifies the meaning of a “casual” employee. Essentially, all “casual” employees who have regular and systematic work and an expectation of ongoing work, will be entitled to make a back payment claim for unpaid leave. This will have implications for businesses around the country, especially considering around 1.6 million Australians, prior to COVID-19, were employed on a “casual” basis. Employers would not be able to set-off the amount of leave owing against the casual loading already paid and may also not be able to recover the casual loading paid to the employee.

With businesses attempting to recover from the impacts of COVID-19, this decision has not been welcomed by employers and in particular, a number of industry groups are lobbying the Federal Government to introduce new legislation to address the uncertainty caused by the Skene and Rossato decisions.

Lesson for employers

In the meantime, until there is more clarity on the issue, it is crucial for businesses to review how their casual employees are engaged and in particular, casual employees that are long term and/or work a regular systematic roster. Employers should consider the real substance of an employee’s work rather than the label attached to it. It is important that employers now offer permanent employment to all their long-term casuals. This may not protect the employer from a back-pay claim but will protect the employer from the incurrence of a continuing future liability.

Additionally, it is important for employers to:

  • Ensure that any casual employees are in fact casual. This means the employee is employed on an ad hoc as needs basis. The employee should not have recurring predictable work, so as to give rise to a reasonable expectation of ongoing work;
  • Review your workforce (including labour hire workers) to assess whether particular employees should no longer be categorized as casual employees. In this regard, convert long term casual employees to either permanent full-time or permanent part time employment; and
  • Review contracts of employment to ensure they are carefully drafted and contain appropriate set off provisions, allowing loadings to be set-off against unpaid leave entitlements.

Employers must however remember that they cannot force employees to convert to permanent status. In addition, casual employees have the benefit of the General Protection provisions of the Fair Work Act 2009 (Cth), and as such any actions taken by an employer that may affect them must be done with care.

Finally, we remind our readers that all modern awards include a casual conversion clause which allows employees to request that their employment be converted to full-time or part-time employment in circumstances where the casual employee has in the preceding period of 12 months worked a pattern of hours on an ongoing basis and without significant adjustment. This request may only be refused on reasonable grounds in accordance with the modern award provisions.

We recommend that if this is an issue for your business, you seek appropriate legal advice.

If you wish to discuss any aspect of this article or require specialist advice or assistance in relation to your employment relations framework, please do not hesitate to contact us.

This alert is otherwise not intended to constitute, and should not be treated as, legal advice.

 

Changes to Modern Awards That Will Affect Most Australian Employers: The Time to Act is Now!

On 4 July 2019, the Fair Work Commission (“Commission”) finalised its decision in relation to the incorporation of new ‘annualised wage arrangement’ clauses, which will replace the existing annualised salary clauses in the modern awards already containing an annualised salary clause. The new terms will also be inserted into three modern awards (Pastoral Industry Award 2010, Horticulture Award 2010 and Health Professionals and Support Services Award 2010) which have not previously had an annualised salary clause.

This decision may fundamentally change the way many employers deal with staff on annual salaries. Gone are the days where an employer can pay an annual salary and thereby completely ignore the relevant modern award. To do this, post the forthcoming changes, is inviting significant underpayment liability.

The proposed new clauses will fall into one of three categories and have specific requirements:

  1. Category 1 – includes modern awards which cover employees who work relatively stable hours. The Commission determined that the annualised salary term for this category will not require an employee’s agreement to the introduction of an annualised salary arrangement. The employer may implement an annualised salary in this category without employee agreement;
  2. Category 2 – includes modern awards which cover employees who work highly variable hours and/or significant ordinary hours of work which attract a penalty rate. The Commission determined that the annualised salary term for Category 2 modern awards will require employers and employees to agree on the application of an annualised salary arrangement; and
  3. Category 3 – includes modern awards which currently provide that the annualised salary be an amount not less than a specified percentage above the minimum weekly wage set out in the modern award (e.g. 25% in the Restaurant Award). The FWC determined that the annualised salary term for Category 3 modern awards will require employers and employees to agree on the application of an annualised salary arrangement. The clause will only apply in respect to non-managerial staff.

Category 1 awards include:

  • Banking, Finance and Insurance Award 2010
  • Clerks – Private Sector Award 2010
  • Contract Call Centres Award 2010
  • Hydrocarbons Industry (Upstream) Award 2010
  • Legal Services Award 2010
  • Mining Industry Award 2010
  • Oil Refining and Manufacturing Award 2010 (clerical employees only)
  • Salt Industry Award 2010
  • Telecommunications Services Award 2010
  • Water Industry Award 2010
  • Wool Storage, Sampling and Testing Award 2010

Category 2 awards include:

  • Broadcasting and Recorded Entertainment Award 2010
  • Local Government Industry Award 2010
  • Manufacturing and Associated Industries and Occupations Award 2010
  • Oil Refining and Manufacturing Award 2010 (non-clerical employees)
  • Pharmacy Industry Award 2010
  • Rail Industry Award 2010
  • Horticulture Award
  • Pastoral Award 2010
  • Health Professionals and Support Services Award 2010

Category 3 awards include:

  • Marine Towage Award 2010
  • Restaurant Industry Award 2010
  • Hospitality Industry (General) Award 2010

Additionally, pursuant to the decision, the new annualised salary provisions, irrespective of category, introduce a number of compliance requirements on employers requiring them to:

  1. advise employees in writing (e.g. within their contracts) of the award provisions that are satisfied by the annualised wage – i.e. specifying which of each component of minimum rates, allowances, overtime/penalties and annual leave loading are satisfied by the annualised salary; and
  2. advise employees in writing and specify (e.g. within their contracts) the outer limit of ordinary hours that would attract award penalty payments, and the outer limit of overtime hours the employee may be required to work without being entitled to an additional payment, such that:
  3. the employer needs to forecast the maximum ordinary hours an employee might work on a weekend or after hours that would otherwise attract a shift penalty;
  4. the employer needs to forecast the maximum hours the employee might be required to work over and above ordinary hours that would otherwise attract overtime pay, and if the employee works in excess of these forecasts, shall be paid an additional sum over the weekly/fortnightly/monthly remuneration imagined by the annual salary; and
  5. at the end of each 12 months from the commencement of the annualised wage arrangement (or at the employee’s termination) to compare the annualised wage paid against the actual remuneration that would have been payable to the employee under the award. Where there is any shortfall, the employer must pay the outstanding amount within 14 days; and
  6. keep records of the starting and finishing times and unpaid meal breaks of each employee, for the purpose of complying with the comparison obligation described above.

These new requirements as proposed in the decision, for some industries, will reflect practices already implemented whilst for others, will appear oppressively onerous.  To that end, we note that the Commission has already begun publishing the future awards in draft, set to commence operation on 4 February 2020. However, these draft future awards contain annual salary clauses that do not, at this stage, mirror the Commission’s decision.

For example, the three draft future awards published include the:

  • Banking, Finance and Insurance Award 2010;
  • Legal Services Award 2010; and
  • Oil Refining and Manufacturing Award 2010

These three draft future awards do not incorporate the requirement that employers advise employees in writing and specify the outer limit of ordinary hours that would attract award penalty payments or the outer limit of overtime hours the employee may be required to work without being entitled to an additional payment.  Furthermore, they do not compel employers to keep records of the starting and finishing times and unpaid meal breaks of each employee.

Nonetheless, it should be noted that these draft future awards have not yet been finalised and may yet incorporate all the requirements as set out in the Commission’s decision.

What This Means for Employers

Employers must not delay and ought to act now to do the following:

  • Identify whether employees are covered by a modern award;
  • If the employees earn an annual salary, whether the salary term and contracts of employment comply with the proposed new award clauses;
  • Implement time and attendance recording procedures; and
  • Implement mechanisms to conduct annual reviews to ensure compliance with the award pay requirements.

By way of best practice, and in whichever industry, employers who intend to employ staff on annualised salary arrangements should be appropriately tooled to keep accurate time and attendance records. This is fundamentally important to ensure that in the event of audit, employers can demonstrate compliance with the remuneration requirements of the applicable award and discharge their evidentiary burden to demonstrate employee remuneration was in line with, or above hours worked including any penalties/overtime and the like.

Furthermore, employers should review their current contracts of employment for employees who are in receipt of annualised salaries and be prepared to implement contract variations for affected staff to maintain compliance. It is also worthwhile for employers to publish memos to staff, advising of any changes – particularly to routine (e.g. clocking in and out) and that the changes are being implemented for their benefit.

The time to act is now!

If any further information in relation to any aspect of this alert is required, please do not hesitate to contact us. Otherwise, we are available and ready to assist should you require any advice or legal support.

This alert is not intended to constitute, and should not be treated as, legal advice.

Does money talk? How to motivate your key people.

It is often believed that “money talks” when it comes to hiring senior executives. But does a salary alone provide motivation to senior executives?

When it comes to senior executives, many businesses believe by paying a significant salary they will obtain the best out of the employee. However, this is not necessarily always correct. A number of other options should be considered by organisations to motivate their senior executives. It is a fact that the culture and success of any business starts with its people and most notably its senior people. If the senior managers are engaged, motivated and have the relevant leadership skills, the business is much more likely to succeed.

In this week’s article, we consider how best to motivate your senior executives and consider a number of ways to do so. In addition, on the topic of executive employees, our next article will look at the factors responsible employers should be considering to ensure the business protected when senior people wish to resign or the business chooses to remove them.

Motivating Senior Executives

Let’s talk about money first. The standard components that make up an executive’s remuneration package usually include salary, superannuation and some sort of short and long term incentive payments. Incentive payments can include:

Share or Options Scheme:

Employees share schemes are a way of attracting, retaining and motivating staff as they align interests. Specifically, employees can benefit financially if the company performs well. These are generally a form of long term incentive as they vest over a period of time, encouraging senior employees to remain with the business.

A range of conditions generally applies to determine when and how an employee can access those shares. For example, commonly an employee may not have full access to the shares until they have been employed by the company for a certain number of years or until they have satisfied certain performance targets. The benefit of long term incentives such as these, is that it encourages employees to remain with the business, but they do little to motivate behaviours. This is usually done by the use of short term incentive plans/bonuses.

Short-Term Incentive Plan (STI)

STI are designed to primarily reward overall outstanding performance over a shorter period of time, against performance goals, but may also take into account behavioural expectations. For example, this may include an annual performance bonus. The use of short term incentive payments should be carefully considered such that it actually operates to motivate excellence rather than merely making up an appropriate remuneration. If the latter is in fact the case, such bonuses will be more demotivating than motivating.

Any monetary incentive payments and plans should be carefully considered to ensure that they enhance and encourage a culture of excellence rather than mere expectation.

Non-Monetary Benefits:

While money is a motivating factor, money alone may not motivate your employees. As such, non-monetary benefits to inspire and engage employees are becoming increasingly popular in the workplace.

Effective non-financial incentives for employees can assist employees feel welcomed, appreciated and valued. These benefits may include:

  • Motor Vehicles;
  • Housing or accommodation assistance;
  • Mobile Phone and laptop;
  • Paid training and development;
  • Promotion;
  • Enhanced decision making;
  • Additional leave;
  • Flexible working arrangements;
  • Paid parental leave;
  • Child care reimbursements for working parents;
  • Gym memberships;
  • Volunteer opportunities;
  • Rewards based on specific personal interests e.g. tickets to the latest theatre show.

However, if employers wish to consider such non-monetary benefits, they must understand that they will inevitably create fringe benefits tax (“FBT”) consequences. As such, employers often offer these benefits as part of an over-all remuneration package which includes the cost of FBT.

The most valuable motivating factors for employees at this level are opportunities to make a difference and to learn and grow. As such, training programs, further education (such as MBA opportunities) and the ability to shape their own contribution may be more motivating, than money alone. It will also set the tone for the culture more generally and encourage employees to value the investment the business makes in them.

However, what motivates individuals differ from individual to individual. The biggest misconception is that one size fits all. In fact, employers that take the time to actually understand what its employees want and more specifically the senior management level, are far more likely to have employees who are aligned with the business and want it to succeed. Like anything, the amount of effort and care the employer puts into its employees is reflected in the time and effort the employees are likely to put into the business. If an employee feels they are being heard, rewarded appropriately and have the opportunity to grow and contribute, they are likely to be successful and bring those under them along for the journey.

In order to assist you create a high performing executive managing team within your business, we suggest employers undertaking the following:

  1. Review your remuneration policy and incentive plans to ensure they are achieving the desired outcomes.
  2. Organise one on one time to set consistent clear goals and expectation. It will also strengthen relationships and allow for discussions regarding suggestions, ideas, concerns and/or issues.
  3. Establish interest in your employee by taking time to understand what motivates them including their interests and goals.
  4. Ensure they have the resources to do their work well. A simple question may be ‘What do you need right now to ensure you succeed?’.
  5. Praise and recognise your employees including senior management. Recognition can be a powerful motivator for many employees.
  6. Many employees including management like to feel that their work has purpose and is meaningful. Allowing managers and senior staff to create purpose in their work can in turn boost drive and productivity.
  7. Allow managers and senior staff to continue to learn and develop new skills to enhance their natural skillset and demonstrate an interest in their advancement.
  8. Involve your staff so that they feel heard and valued. Not all information and decisions should be made from the top down and by allowing staff to be involved demonstrates the business appreciates and respects them.

If you require assistance in relation to how you may motivate your senior level employees or require general employment law related advice, please feel free to contact our office.

This alert is not intended to constitute, and should not be treated as, legal advice.

Long Term Casuals – Are They Entitled to Leave Entitlements?

It is common knowledge that employers have a choice as to how they employ their employees. In circumstances where the employer does not need someone to work full-time hours, they can either employ the individual as a part-time permanent employee, or as a casual employee. However, many employers have abused the concept of casual employment by effectively retaining employees for long periods of continuous and predictable employment. We should also recognise that many employees prefer casual employment as they receive a greater rate of pay than they would otherwise as a permanent employee. However, this issue has become quite a political and legal hot potato and in the last 12 months there have been a number of cases heard by the Courts in which employees have argued that despite receiving a casual loading, they should be paid the value of annual leave entitlements to which they would have otherwise been entitled had they been employed as permanent employees.

This issue has understandably caused a great amount of concern for employers, as it has raised the very scary prospect that they may be liable for hundreds of thousands of dollars in back pay claims for part of their casual workforce that has regular and systematic employment and an ongoing expectation of work. This issue was of such significance during the last federal election, that the Labor Party pledged to deal with this issue legislatively and define the meaning of casual to ensure “long term” casuals were treated in the same way as permanent employees.

In August 2018, the Full Federal Court determined that a labour hire employee working for Workpac in the mining industry was entitled to annual leave entitlements despite the fact that he had been engaged as a casual employee. The employee worked a continuous rolling roster of 7 days on and 7 days off, in the same manner as the mining company’s permanent staff. There was no element of choice as to when he worked, or the hours he worked. The company chose not to appeal this decision, however, is fighting the same issue in respect of another employee. That matter is currently before the Federal Court and the Commonwealth has intervened to try to ensure that casual employees cannot “double dip”. In other words, the government wants to ensure that if the Court determines that the employee is actually a permanent employee and therefore entitled to leave, the casual loading paid to him will be offset against any leave entitlement determined by the Court.

The issue has just become even more contentious as the Construction Forestry Maritime Mining Energy Union (“CFMMEU”) this week launched a class action against Workpac, seeking at least $12 million in unpaid annual leave entitlements for what it calls “misclassified” casual employees. This action follows another class action by Adero law last year seeking similar orders.

What does this all mean for the average employer that engages casual employees as part of their workforce? One thing is clear – until this matter is resolved either by the courts or by legislation, employing long term casuals places employers at risk of significant underpayment claims. So, what should employers do?

  • Ensure that any casual employees are actually casual. This means the employee is employed on an ad hoc as needs basis. The employee should not have recurring predictable work, so as to give rise to a reasonable expectation of ongoing work; and
  • Convert long term casual employees to either permanent full-time or permanent part time employment.

Employers must however remember that they cannot force employees to convert to permanent status. In addition, casual employees have the benefit of the General Protection provisions of the Fair Work Act 2009 (Cth), and as such any actions taken by an employer that may affect them must be done with care.

In addition, we remind our clients that all Modern Awards now include a casual conversion clause which allows employee to request that their employment be converted to full-time or part-time employment in circumstances where the casual employee has in the preceding period of 12 months worked a pattern of hours on an ongoing basis and without significant adjustment. This request may only be refused on reasonable grounds in accordance with the modern award provisions.

We recommend that if this is an issue for your business, you seek appropriate legal advice.

If you wish to discuss any aspect of this article or require specialist advice or assistance in relation to your employment relations framework, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.

You need to take a Holiday, no why, if or buts..

It is that time of year again. Employers are looking at the holiday period and how this is managed. Many employers will be closing down operations over the festive season and want employees to take this time as annual leave. However, employees are not always so willing to take annual leave at this time.

It is not uncommon that we receive queries as to whether employers can direct employees to take annual leave. This often arises when the business shuts down usually over the Christmas and New Year season. Conversely, it is not uncommon that we receive a query as to whether, and in what circumstances, employees are able to trade in a portion of their annual leave entitlement for cash.

The answer to both questions is far from straightforward. The industrial relations landscape in Australia does permit employers to direct employees to take leave under certain specified conditions. In addition, some employees may be entitled to “cash out” their leave, subject to specific requirements which apply under legislation and various industrial instruments.

Fair Work Act

The Fair Work Act 2009 (Cth) (“FW Act”) sets out the basic entitlement of employees to paid annual leave. This entitlement is one of the ten safety net entitlements under the National Safety Net (“NES”) contained in the FW Act. Most employees are entitled to 4 weeks paid leave each year of service by the employee, which accrues progressively during the year of service, depending on the employee’s ordinary hours of work. Annual leave accumulates from year to year and cannot be lost or extinguished other than by using the leave or cashing out leave in accordance with the provisions of the FW Act.

Some employees may be entitled to an additional weeks’ annual leave each year, if they are a shift worker who works in a business that has continuously rostered shifts 24 hours a day, 7 days a week and the employee regularly works those shifts and works on Sundays and public holidays. Employees covered by a Moderns Award or Enterprise Agreement who are classified as shift workers for the purposes of the NES will also be entitled to 5 weeks’ annual leave each year.

Unfortunately, the rules regarding the taking and cashing-out of annual leave are not uniform and differ depending on whether the employee is covered by a Modern Award or Enterprise Agreement, or not. This makes the issue for employers especially difficult as there may be different rules applicable to different classes of employee within the business. Employers will need to be very careful not to apply a one rule fits all approach to this issue.

The  FW Act allows employers to direct award/enterprise-free employees to take a period of paid annual leave, but only if the requirement to do so is reasonable, for example, if the business is shutting down for a period for example, between Christmas and New Year or the employee has accrued an excessive amount of paid leave. The list of what is “reasonable” is not closed and will depend on the circumstances. In addition, the employer and an employee can agree on when and how paid leave may be taken by the employee. This allows the employer and employee to agree for instance on the ability of the employee to take paid leave in advance of accrual.

In many instances, employees may not have accrued sufficient leave at the time of the shut down. Can the employer nevertheless direct employees to take leave and how will it then be treated? For Award/Agreement free employees, the employer and employee can agree that the employee takes that period as annual leave in advance. If the employee does not agree to take the leave in advance, the leave will be unpaid leave.

Section 94 of the FW Act provides that an employer and award/enterprise agreement-free employees may agree to cash out some of the employee’s accrued annual leave entitlement’ provided such agreement would not result in the employee’s remaining entitlement being less than 4 weeks. The FW Act requires the parties to evidence such agreement in writing on each separate occasion that annual leave is cashed out.

Modern Awards

In the case of an award-covered employee, most modern Awards now allow employers to direct employees who have excessive annual leave, to take one or more weeks paid annual leave on the basis that the remaining annual leave entitlement is not less than six weeks. Before issuing the direction, an employer must first meet with the employee to try and agree on a plan to reduce the excessive leave accrual.  In addition, most Modern Awards allow an employer to require an employee to take annual leave during a shut down period. In such circumstances, however the employer MUST provide the employee at least 4 weeks’ notice of such requirement.

Cashing out of annual leave is only permissible where the applicable Modern Award contains a term permitting cashing out of annual leave to occur. Most Modern Award containing a cashing-out clause, allow employees to cash out up to 2 weeks’ annual leave in any 12 month period, as long as they have not less than four weeks’ accrued annual leave remaining, and the agreement is formalised in writing between the employee and employer.

In addition, the Moderns Award for the most part also allows an employer and employee to agree to paid leave in advance of the employee actually having accrued the entitlement to take the leave. Such agreement must be recorded in writing. In circumstances where this does occur, should the employee’s employment end before the employee has sufficiently accrued the leave taken in advance, the employer may deduct the balance owing from any monies due to the employee on termination.

If, however, the applicable Modern Award is silent on this issue, the employee will not be entitled to cash-out their accrued leave and any agreement to do so will be a breach of the FW Act and the Modern Award. In addition, if the Moderns Award does not allow an employer to direct an employee to take leave or deal with the leave as set out above, the employer will not be entitled to do so.

Enterprise Agreements

Section 93 of the FW Act allows an enterprise agreement to include terms that relate to the taking of and cashing out of annual leave.

Although the procedural requirements for directing employees to take or cash out annual leave are prescriptive and not overly controversial, employers who breach the requirements or who otherwise take some form of detrimental action (including by coercing an employee to cash out annual leave) may be at risk of contravening the general protections under the FW Act.  In such circumstances, an employer could be ordered to pay an employee compensation in respect of the breach and may be potentially liable to significant civil penalties for failing to comply with the terms of a modern award or enterprise agreement.

It is not uncommon for us to be asked whether an employer can refuse an employee’s request to take annual leave. Given that the NES provides all employees with an entitlement to take annual leave, this is an extremely pertinent question. Annual leave can create practical management difficulties for employers, and employers may have a real concern that if an employee takes annual leave at a certain time, it will be disruptive and prejudicial to the business. So can the employer refuse the request in these circumstances? The NES provides that paid annual leave may be taken for a period agreed between the employer and employee and that the employer must not “unreasonably” refuse to agree to a request by an employee to take annual leave. However, given that the annual leave period must be agreed and the fact that the act specifically states that the employer cannot “unreasonably” refuse a request, means the employer is able to refuse a request for annual leave if such refusal is reasonable. Whether the refusal will be reasonable will depend on the circumstances of each case. Care should be exercised in making a decision to refuse a request for annual leave, and it is advisable that evidence of the reasons be maintained and properly communicated to the employee. The inappropriate refusal of annual leave may result in a claim by the employee of the general protection provisions and would also constitute a breach of the FW Act.

Lessons for Employers

  1. If the business will be shut down over the holiday season, and employees are required to take leave, then at least 4 weeks’ notice of this requirement should be given to all Award covered employees;
  2. If the employees do not have accrued leave, the parties should agree that the employee takes the leave in advance and the agreement is recorded in writing;
  3. If the employee does not have accrued leave and does not wish to take leave in advance, the employee should either be allowed to work, or informed that they will need to take the period as unpaid leave; and
  4. If you wish to discuss any aspect of this article or require specialist advice or assistance in relation to an employment law issue, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.

KEEPING IT CASUAL: LANDMARK DECISION AFFECTING CASUAL EMPLOYMENT

For most employers, hiring casual employees has a number of advantages. Whether you are a small or large business, engaging casual employees can help increase flexibility in your workforce and afford you the ability to increase staffing levels during your busier months, whilst providing the ability to reduce headcount and/or wages during the quieter months.

However, in recent years there has been a significant focus on what casual employment actual means and it is now crucial that if businesses are engaging casual employees they are doing so on a genuine basis. To this end, employers that incorrectly classify an employee as a casual may leave themselves open to significant liability and potential risk.

In this week’s article we consider the proper legal definition of casual employment and also consider a recent landmark decision of the Full Bench of the Federal Court of Australia which considered whether a casual truck driver whose employment was terminated was entitled to accrued annual leave.

The Legal Landscape

The term ‘casual employee’ is not defined in the Fair Work Act 2009 (Cth) (“FWA”). However, the FWA does make it clear that casual employees do not receive the same benefits available to permanent employees. These benefits include statutory leave entitlements, paid public holidays, severance pay in circumstances of redundancy and the minimum amount of notice required to be given by an employer upon the termination of a permanent employee’s employment. To compensate casual employees for not having access to these entitlements and less job security, they are entitled to receive a casual loading to the minimum rates of pay for permanent staff.

The issue of whether an employee has been appropriately classified as a casual has, however, arisen when casual employees are working regular and predictable hours for an extended period of time. In these circumstances, it raises the question of whether the employment relationship, in reality, is one of a casual nature. The common law test for casual employment usually starts from the premise that casual employment has no continuity of engagement and is required on an as-needs basis. However, the Court will usually consider a number of factors to ascertain whether the employment relationship is genuinely casual. These factors may include:

  • the regularity and certainty of work and hours of work including the existence of an organised roster;
  • the existence of consistent start and finishing times for shifts;
  • whether the employee follows a particular pattern of work, and the predictability of those hours;
  • the mutual expectation of continuity of employment;
  • how wages are paid – casual employees are generally paid by the hour rather by salary;
  • whether the employee was notified of the casual nature of the employment; and
  • an employee’s length of service with the organisation.

Where the work is regular and systematic, and the employee has a reasonable expectation of ongoing work, the engagement will not be considered casual. There can be significant ramifications for employers if an employee is found to be a permanent employee despite being classified as a casual. This can be highlighted by the below landmark decision recently handed down by the Full Court of the Federal Court of Australia.

Landmark Decision

In WorkPac Pty Ltd v Skene [2018] FCAFC 131 (“WorkPac”), Mr Skene was employed on a casual basis by WorkPac, a labour hire company, performing duties as a dump truck operator at a coal mine from 17 April 2010 to 17 July 2010 and then again at a various other coal mines from 20 July 2010 to 17 April 2014.  Mr Skene worked a roster of 12.5 hours per shift on a 7 day on, 7 day off, continuous roster arrangement. As such, Mr Skene argued that he was a permanent full-time employee of WorkPac and entitled to annual leave in accordance with their applicable workplace agreement and the FWA. WorkPac argued that Mr Skene was a casual employee and thus not entitled to annual leave under either their workplace agreement or the FWA.

Mr Skene was successful at first instance and the matter was appealed. On appeal, the Full Bench stated that the relevant test to be applied when assessing if an engagement was a genuine casual relationship was that there should be no certainty about the period over which the employment is offered and there should be an informality, uncertainty and irregularity about the engagement. It was further held that determination of whether an employee is truly a casual employee must be assessed by looking at “the conduct of the parties to the relationship and the real substance, practical reality and true nature of that relationship”.

Importantly, the Full Bench also held that an employee who commences their relationship as a casual can later become part-time or full-time “because its characteristics have come to reflect those of an ongoing part-time or full-time employment”. It was stated that although a casual employee is paid casual loading, this will not be a determinative factor of whether the employment is casual but speaks of the intent. Instead, consideration is required to look at whether the casual relationship has been put into practice and if achieved, has been maintained.

It became evident that Mr Skene’s pattern of work was regular and predictable, continuous and not subject to significant fluctuation in circumstances where there was plainly an expectation that Mr Skene would be available, on an ongoing basis, to perform the duties required in accordance with the 12 months roster set in advance. In conclusion, the Full Bench found that Mr Skene was entitled to annual leave and this entitlement should have been accrued by WorkPac and paid upon termination of his employment notwithstanding the fact he had signed a casual employment contract and had received the casual loading.

It is notable that in adopting this approach, the Full Bench has effectively overturned previous decisions in this area which had indicated that if an employee was engaged as a casual in accordance with the terms of the applicable industrial instrument and paid a casual loading, they could generally be considered a casual employee, notwithstanding their actual working arrangements or pattern of work.

The key takeaway from this decision as it stands is that if an employee has a regular and predictable pattern of work with an expectation of ongoing engagement, they may well (and it now appears likely) be considered a permanent employee as opposed to a casual employee.

In light of this decision, a number of employer groups have voiced their concerns in relation to casual workers “double dipping” by claiming annual leave on top of their casual loading. As a result, employer groups are pressing the government to provide a legislative fix to the precedent this decision has now created. Many expected WorkPac to appeal the decision, however, the deadline to appeal has now passed and it seems WorkPac did not file an application to apply for special leave to the High Court  in order to appeal the decision.

Other Risks

In addition to the significant risk the decision in Workpac has now created for employers who have long term casual employees, it should also be noted that long term casual employees with reasonably predictable hours and an ongoing expectation of work, have the right to bring an unfair dismissal claim in the same was as permanent employees.

Lessons for Employers

As a result of the above decision, a large number of employees currently described by employers as ‘casuals’ could in fact be permanent. This may have far reaching consequences leaving Australian businesses facing the potential of significant liabilities for the back payment of entitlements arising from the engagement of casual employees.

If your business currently employs a casual workforce, we recommend you consider the following:

  • Review the definition of ‘casual’ in any modern award or enterprise agreement applicable to your business;
  • Review your current casual workforce to ensure those employees are genuinely casuals;
  • Continue on an ongoing basis to review your casual engagements to ensure they do not develop into a part-time or full-time relationship;
  • Consider whether it may be appropriate to offer permanent employment to long-term casual employees;
  • Review your current rostering system and ensure casual employees are not working regular systematic hours over an extended period of time; and
  • Ensure you have well-drafted casual employment contracts in place which clearly outline the nature of the work and that the casual employee will be paid a casual loading in lieu of the ordinary employment entitlements and benefits enjoyed by permanent staff.

If you wish to discuss any aspect of this article or require specialist advice or assistance in relation to an employment law matter, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.

Why Every Employer Needs to Consider the Implications of Modern Award Coverage

“If I pay above minimum wage, does the modern award still apply”?

Many employers struggle with the complex myriad of legislative and regulatory requirements surrounding the employment and remuneration of workers. The role of modern awards and how they apply are one of the most misunderstood aspects of the Australian industrial landscape. Many employers do not properly understand their obligations and the requirements imposed on them by the operation of modern awards that cover their employees.

It is our experience that employers hold many misapprehensions surrounding their employment obligations. For instance, it is common for employers to hold the misconception that if they are paying above minimum wage or if they are paying above the modern award rate, then the modern award does not apply. Both these concepts are incorrect and usually means the employer is likely incurring an ongoing liability and may be exposed to an underpayment claim. Ignorance of modern award coverage can mean the business may be subject to very significant backpay claims, penalties and scrutiny by the Fair Work Ombudsman, not to mention potential adverse publicity and reputational risks.

Accordingly, in this week’s article we review the basics of modern awards, how to know when a modern award applies to your employees and why every employer should ensure they understand the importance of modern awards and how they may affect their business.

Modern Awards Introduction and Coverage

Modern Awards were implemented in January 2010 and replaced the various State and Federal Awards. There are now 122 Modern Awards which apply across Australia and almost every industry.

A modern award is a legally binding instrument that establishes the minimum wages and working conditions for employees in a particular industry or occupation. Each modern award operates in conjunction with the National Employment Standards under the Fair Work legislation and applies to all employees covered by the ‘national workplace relations system’, who are captured by the scope of the relevant modern award. If the business employs people and the employer is not a State or local government entity, then the national workplace relations system and modern awards will apply to your workplace. The only exception to this is private individuals or partnerships who may employ people in Western Australia.

In addition, every modern award contains classifications for employees within a particular industry according to their skill level and/or qualifications and each of the classifications has a corresponding minimum wage. Modern awards also set a range of other employment terms and conditions such as:

  • Penalty rates – this is for work performed on weekends, at night, on public holidays and the like;
  • Overtime rates – this is for work in excess of an employee’s ordinary hours of work;
  • Allowances which are to be paid to employees for performing certain tasks or having a particular skill or for using their own tools (for example a travel allowance, first aid allowance, dangerous heights allowance); and
  • Breaks such as when employees should receive rest or meal breaks and the minimum period allowed for such breaks.

Virtually every non-government employer in Australia will have employees who are covered by a modern award, unless they have an enterprise agreement in place. It matters not that the employer pays their employees above the requirements of the modern award. It is therefore vital that employers correctly identify the modern award that may apply to their employees as it is possible and very common for employers to be subject to two or more modern awards in relation to different kinds of employees. For example, a construction business may have qualified carpenters as well as office staff who complete administrative work. As such, the Building and Construction Award 2010 will apply to the carpenters and the Clerks Award 2010 will apply to the administration staff.

The Cost of Getting it Wrong

Failing to understand the requirements of a modern award, assuming that because you pay your employees significantly more than the modern award may require or incorrectly determining modern award coverage and/or incorrectly classifying an employee can create an array of problems, including significant financial costs to the employer. There can also be serious ramifications for employers if the Fair Work Ombudsman investigates the business as a result of underpayment claims. Not only is it time consuming and daunting to have the Fair Work Ombudsman audit your entire business with a fine-tooth comb, there can be serious ramifications if the Fair Work Ombudsman finds that the business has not been compliant. These ramifications may include:

  • Infringement notices – even the smallest mistakes such as not providing pay slips in accordance with the Fair Work Act 2009 (Cth) can see an employer incur on the spot fines;
  • Backpay to underpaid employees – if the Fair Work Ombudsman detects an underpayment to employees, they can order the business to backpay all unpaid employee entitlements including to employees who may have already terminated their employment. In these circumstances, where an employer has incurred an underpayment liability over a number of years, the amount of backpay which the business will be required pay can be significant and even financially crippling;
  • Proceedings and penalties – the Fair Work Ombudsman is able to bring proceedings against an employer when there has been a contravention of the workplace laws. There have been numerous decisions where not only has the business been severely penalised for non-compliance of workplace regulations but also the individual involved in the contravention has been personally penalised under the accessorial liability provisions. For instance, in FWO v Blue Impression Pty Ltd & Ors [2017] FCCA 810, the Court penalised a Japanese restaurant for deliberately underpaying two employees and as a result, imposed a penalty of $116,250 om the business, $20,000 to the Director and part owner as well as $7,000 to the former internal payroll and account manager. The business was also required to pay back $18,000 to the employees who had been underpaid whilst working for the business;
  • Negative media attention and reputational harm – negative media attention and potential harm to the business name and reputation can be severe. Company’s such as 7-Eleven, Donut King, Dominos, Caltex and George Calombaris’ Hellenic restaurant have experienced significant financial impact as well as the unavoidable lasting reputational damage as a result of underpaying their workers and the conduct being highly publicised in the media; and
  • Cultural damage – underpaying employees can create a negative culture and low morale. Staff who feel they are not being financially compensated and appreciated generally do not work productively which can often create a high staff turnover.

In addition, the underpayment of workers’ entitlements undermines the trust of customers and demoralises workers, which can ultimately lead to an array of issues for stakeholders. This was unfortunately the very real experience for 7-Eleven and its Board.

More recently, an example of the severity and seriousness involved when a business incorrectly pays staff can be highlighted by the recent media release from Lush Cosmetics. Lush Cosmetics has now launched a $2 million backpay scheme after admitting it underpaid as many as 5,000 employees due to a payroll error. Specifically, as Lush Cosmetics grew they did not invest in appropriate payroll infrastructure to support their growing business. Lush will be concentrating on the backpay scheme for the remainder of the year and will now be investing $1.5 million into upgrading their payroll system which will involve scanning and re-entering 200,000 handwritten paper timesheets dating back to 2010. The complexity of this process as well as the time and money involved to correct the company’s failure to audit their workplace practices and upgrade their payroll system has had huge consequences for this business and their brand.

The Fair Work Ombudsman has also launched a campaign targeting the restaurant industry and as result published the fact that it has already recovered over $400,000 in backpay from employers in this industry. In addition, celebrity chef, Neil Perry and his Rockpool Group are facing significant reputational damage and financial pain as a result of their alleged failure to pay employees in accordance with modern award requirements.

Finally, we often hear our clients tell us that they do not need to worry about underpayment liabilities as they are paying their employees well above what the modern award requires. This itself will be insufficient to protect the business from underpayment claims, especially if contracts of employment are not expressly drafted to state that the over award payment sets off any modern award entitlements. In this regard, a business in the Gold Cost was required to pay its employee, who was covered by the Clerks Private Sector Award, backpay despite the fact that she earned over $400,000 per annum, merely because there was not provision in her contract setting off the overpayments against the modern award entitlements.

Lessons for Employers

We understand that determining which modern award and/or which classification may apply to your business and/or employees can be confusing and time consuming. However, as foreshadowed, the ramifications of getting it wrong can be far more costly to your business. Employers should consider and review the following within their business:

  • Review whether you are applying the correct modern award or legislative instrument to your employees – we suggest seeking appropriate legal advice if you are unsure;
  • Conduct an audit of your current hourly rates, penalty rates, overtime, loadings, applicable allowances and ensure annualised salaries are sufficient to cover all employee entitlements – we suggest seeking appropriate legal advice if you are unsure;
  • Ensure your contracts of employment properly and correctly allow for the set-off of over award payments;
  • Ensure you have appropriate and adequate payroll systems in place to support your workforce and business needs; and
  • Develop and ensure you have robust employment practices in place regarding record keeping, payslip dissemination and employment contract administration.

If you wish to discuss any aspect of this article or require specialist advice or assistance in relation to modern award compliance or an employment law matter generally, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.

The $100,000 reason to keep your payslips and employee records in order

With the start of the new financial year and the annual increase in minimum wages, many businesses have most likely reviewed their pay rates and modern awards to ensure their company’s compliance in this regard. However, many businesses are failing to get some of the other basics right when it comes to record-keeping for their employees. In this week’s article we review an employer’s obligation in relation to payslips and employee records, the Fair Work Ombudsman’s current campaign on this issue and we review a recent decision which has imposed a record fine as a result of inadequate record-keeping.

Employer’s obligations

Record-keeping requirements are contained in the Fair Work Act 2009 (Cth) (“FWA”) and the Fair Work Regulations 2009 (Cth) (“Regulation”). In particular, under the FWA an employer is required to make and keep employee records for seven years. The FWA also stipulates that an employer must provide a payslip to an employee within one working day of paying the employee in respect of their work. Both these are mandatory requirements and incur civil penalties.

The Regulation requires employers to keep records in legible English and each employee record must include the employee and employer’s name, whether the employee is full-time, part-time or casual, date employment commenced and terminated (if applicable) and the ABN of the employer. Employers must also maintain an employee record which includes rate of remuneration, any deduction of wages, hours worked by each employee (if they are entitled to overtime or penalty rates), details of any bonus, penalty rate, loadings or monetary allowance payable to the employee, overtime hours, overtime pay, superannuation contributions (including name of fund, amounts, period over which the contributions were made) and if the employee is entitled to leave, any leave the employee takes and the balance of the leave entitlement. Additionally, if the employer and employee agree to an individual arrangement in respect of averaging hours, or entering into a guarantee of annual earnings, or the cashing out of accrued annual leave, employers must make and keep a copy of the written agreement as part of the employee personnel file.

In relation to payslips, the Regulation requires certain information to be provided in an employee’s payslip. These include the name of the employer, the employee’s name, the period to which the pay slip relates, the date on which the payment was made, the gross amount of payment, the net amount of payment, any amount to be paid as a bonus, loading, allowance, penalty rate, incentive based payment or other entitlement, the employer’s ABN number, the superannuation contribution and if the employee is paid an hourly rate, this should also be disclosed on the payslip as well as the number of hours worked. The Regulation enforces the above requirements by way of civil penalties.

In addition, changes by the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 introduced at the end of last year amended the FWA to include penalties for ‘serious contraventions’ of workplace laws, increased penalties for breaches of record-keeping and payslip obligations and introduced new penalties for companies who provide false or misleading information.

In particular, the introduction of the new amendments provides for penalties of up to $630,000 per contravention for companies involved in ‘serious contravention’ and $126,000 per contravention for individuals. A serious contravention will include the intentional conduct where the person’s conduct was part of a systematic pattern of conduct relating to one or more other persons. In this context the systematic underpayment of employees coupled with the failure to keep proper records will amount to a serious breach. It has also doubled the maximum penalties for record-keeping and pay slip breaches to $63,000 per contravention for companies and $12,600 per contravention for individuals and tripled existing penalties for cases where employers give false or misleading pay slips to workers, or provide the FWO with false information or documents.

Furthermore, a reverse onus of proof now applies, meaning that employers who do not meet the record-keeping or pay slip obligations and are unable to give a reasonable excuse will need to disprove allegations of underpayments made in a court.

Fair Work Ombudsman Campaign

In April 2018, the Fair Work Ombudsman (“FWO”) commenced a national campaign titled ‘The Workplace Basics Campaign’ which will see the FWO conduct audits across a number of businesses (including a focus on small businesses) to ensure that employers are complying with fundamental workplace obligations.

The FWO has advised that through the campaign they are seeking to address its concerns that many employers are continuing to struggle with basic workplace obligations such as base hourly rates, penalty rates, overtime, record-keeping requirements and payslip requirements. The FWO have also announced that the campaign will not only have a strong audit and education focus, but the FWO will use its compliance and enforcement powers where required.

Recent case law

A recent decision of the Federal Circuit Court of Australia demonstrates the importance and subsequent costs to all parties where employee records are not kept and/or maintained, and where respective legal obligations and compliance requirements are not met. In the decision of FWO v Aulion Pty Ltd & Anor SYG 3642/2017 the FWO brought proceedings against Mr Peter Dagher and his company Aulion Pty Ltd. The company formerly operated a Caltex service station in Five Dock. The proceedings were initiated after the FWO had undertaken a national investigation of 25 Caltex stores in response to concerns about underpayment and other non-compliance issues.

As part of the audit, the FWO issued Notices to Produce to Mr Dagher and the company.  In response, Mr Dagher and the company provided a range of documents, including contracts of employment, time -and wage records, payslips and earning summaries for six employees who were migrants and international students. However, the FWO became concerned that the information contained in the documents did not accurately reflect what the company paid the employees and as such, the FWO issued further Notices to Produce to a bank, superannuation fund and Aulion’s accountant. As a result of the further Notices to Produce, the FWO found great inconsistencies between the documents.

During the Court proceedings, Mr Dagher admitted that the reason for the inconsistency was that they had falsified documents and records. Mr Dagher had also breached laws in relation to not providing accurate payslips to employees within one day of payday. Consequently, His Honour ordered Mr Dagher and his company to pay almost $100,000 of penalties between them (specifically, $16,038 and $80,190 respectively). The decision is the highest penalty secured by the FWO in a legal action relating solely to record-keeping and payslip breaches.

It is important to note that the breaches for which Mr Dagher and his company were penalised occurred in 2016. As such, the decision serves as a warning that higher penalties are now possible, and very likely in the future under the introduction of the new legislation.

Furthermore, there is an increasing onus being put on professional advisors (such as HR professionals, bookkeepers, accountants, payroll advisors and so on) to ensure they know the rules and are vigilantly providing advice to their clients. In this regard, the FWO have consistently warned professionals that they cannot avoid responsibility for their client’s breaches and the FWO are taking a firm approach to hold professionals accountable through the accessory provision within the FWA.

This was highlighted last year when the FWO for the first time prosecuted an accounting firm in relation to its role in a client’s breach of the FWA. In the decision of FWO v Blue Impression Pty Ltd & Ors [2017] FCCA 810 and FWO v Blue Impression Pty Ltd & Ors (No 2) [2017] FCCA 279, the employer was a Japanese fast-food chain in Melbourne and the FWO prosecuted them for underpaying two of its workers. The FWO commenced legal proceedings against the operator of the fast-food chain, one of its managers and the employer’s accountancy firm which provided bookkeeping and data entry services and was run by a certified practicing accountant.

The accountancy firm claimed that they were simply following the client’s order and had no real authority to question the payment arrangements of each employee and thus simply entered the details and processed them through MYOB. In determining the matter, the Court found that the accountancy firm had intentionally ignored the breaches of the FWA in processing the underpayments. As such, the Court ordered the accountancy firm to pay pecuniary penalties of $53,880.

Lessons for employers

In light of the above, it is critical businesses have implemented and are consistently following correct processes and practices for their business. Employers should consider and review the following within their business:

  • whether you are applying the correct modern award or relevant legislative instrument to your employees;
  • Conduct an audit of your current practices to ensure your business is paying the correct hourly rates, penalty rates, overtime, loadings, applicable allowances and ensure annualised salaries are sufficient to cover all employee entitlements – we suggest seeking appropriate legal advice if you are unsure;
  • Ensure your business record keeping practices are up to date and in order;
  • Develop or ensure you have robust processes in place to manage employee onboarding and remuneration;
  • Ensure you are providing appropriate payslips to employees (these should include the record of superannuation and leave accruals);
  • If you are a franchisor or holding company, ensure your franchisee or subsidiaries are compliant with their workplace obligations;
  • Ensure you are paying correct superannuation, tax and employee entitlements; and
  • Provide proper and adequate employment contracts to all employees and appropriate contractor agreements to contractors.

If you wish to discuss any aspect of this article or require specialist advice or assistance in relation to an employment law matter, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.

Should I Be Getting Paid for This?

Unpaid internships are increasingly becoming the default way of beginning a professional career in Australia. Last May, we wrote about the increased use of volunteer and unpaid workers by employers and the potential legal issues surrounding the use of unpaid work arrangements.

By way of summary, it is important to remember that some unpaid work arrangements are permissible at law, while others are not. Whether an unpaid work arrangement is lawful under the Fair Work Act 2009 (Cth) (“FWA”) depends on whether an employment relationship exists or whether the arrangement involves a vocational placement for the purposes of training.

An unpaid work experience opportunity or internships can be lawful if it is part of a genuine vocational placement. To qualify there must be a formal arrangement that is part of an educational or training course requirement undertaken on an unremunerated basis and authorised by a law or an administrative arrangement of the Commonwealth, a State or Territory. If the arrangement satisfies and is within the meaning of the FWA, the arrangement will be lawful.

When, however, an unpaid work arrangement is not a vocational placement, the arrangement can only be lawful if no employment relationship exists. In essence this means the work performed is for the benefit of the intern, is for a short period of time and is for the primary purpose of providing the worker with on the job training. If, however, the real benefit is to the employer, it is likely that an employment relationship will exist, and the employer may be liable to the employee for (among other things):

  • minimum rates of pay and superannuation;
  • leave and other paid entitlements provided under the National Employment Standards; and
  • other benefits such as penalties, loadings, allowances and overtime as provided by the terms of any applicable modern award or industrial agreement.

Over the past few years, there have been increasing concerns that unpaid workers (which include young people, migrants and other vulnerable categories) may be exploited because they are forced to accept volunteer work as a pathway to obtain paid employment in their chosen professions. In this regard and considering the new ‘vulnerable workers’ amendments made to the FWA, employers must carefully consider whether they are exposing themselves to underpayment claims and/or other potential legal action by entering into these kinds of arrangements.

CASE LAW

In the recent decision of Mitchell Klievens v Cappello Rowe Lawyers [2017] FWC 5126 the Fair Work Commission (“FWC”) considered whether unpaid training for a graduate lawyer could be counted in determining whether he had a sufficient period of employment to allow him to bring an unfair dismissal claim.

Mr Klievens began unpaid practical legal training with Cappello Rowe lawyers in July 2016, initially working on his flex days from the Health Care Complaints Commission (“HCCC”). When his employment with HCCC ceased last August, he increased his days of work to between three to five days a week, and in October the law firm engaged him as a full-time Law Clerk on an annual salary and subject to a six-month probationary period.

The law firm subsequently dismissed him in March this year, the same day he was diagnosed with anxiety, insomnia and depression and two days after he complained that a number of workplace issues were affecting his health and advised that he would be seeking a referral to a psychiatrist. The letter terminating his employment stated that his employment would “end immediately” because the firm had settled some large matters and experienced a decline in new business and the position of junior lawyer at the Sydney office was no longer needed.

In order to bring an unfair dismissal application, Mr Klievens needed to establish the unpaid period was part of his tenure, in order to satisfy the minimum six-month employment period for the FWC to hear his application.

Mr Klievens submitted that his unpaid period should be counted as employment because the nature of his effort meant it could not be classified as work experience and the time he spent working at the law firm exceeded the time requirement to complete his practical legal training. He further argued that he was completing the same work as a paid employee, was included in group emails regarding matters and was subject to a high degree of control regarding workplace attendance. Ms Cappello of Cappello Rowe Lawyers argued that during the unpaid period, Mr Klievens’ time was not recorded or billed to clients and accordingly he did not have any financial targets and he was given files to read or research that had little benefit to the law firm but were intended principally for his education.

The Fair Work Commission noted a number of different forms of unpaid work existed including vocational placements, unpaid job placements, internships, work experience and trials. In certain circumstances, not paying a person for the work being completed can be lawful. For example, for defined vocational placements, or where a job seeker is not an employee, but rather is receiving benefits from the government and undertaking a work placement as part of a Commonwealth employment program. However, in cases where the person is actually an employee, they are entitled to pay and conditions under the FWA. The period of unpaid work would also count towards determining if the person has met the requirements to bring an unfair dismissal application with the FWC.

The FWC confirmed unpaid work experience, job placements and internships that are not vocational placements will be unlawful if the person is in an employment relationship with the business for whom they are working. The definition of ‘vocational placement’ is defined in the FWA but the FWC also stated that each matter needed to be determined on its own facts, and it was necessary to determine whether “the arrangement involves the creation of an employment contract”, whether written or verbal.

Commissioner Johns sated that there are a range of indicators that an employment relationship exists, and it needed to be assessed on a case by case basis. The indicators include:

  • An intention to enter into an agreed arrangement to do work for the employee;
  • A commitment by the person to perform work for the benefit of the business or organisation; and
  • An expectation that the person receive payment for their work.

The FWC also considered the following indicators to determine whether an employment relationship existed:

  • Reason for the arrangement;
  • The length of time;
  • Significance to the business;
  • The work the person undertook; and
  • Who was getting the benefit.

In this decision, the FWC accepted that Mr Klievens’ unpaid period was for the purpose of a vocational placement, as his practical legal training was mandatory for admission to practice as a lawyer and it was meant to comprise of real work not just observational work. Although Mr Klievens did complete relevant and useful work, there was no evidence that he was obliged to help generate revenue and there was no intention to enter into an employment arrangement with him. It was also clear that there was no expectation that he be remunerated for the work.

In valid internships, Commissioner Johns noted that the person who is doing the work should get the main benefit from the arrangement. Alternatively, if it is the business who mainly benefits from engaging the person and their work, then it is more likely the person is an employee. In the present matter, it was clear that Mr Klievens had finished his law degree, was eager to obtain a practicing certificate and could not do so without completing his practical legal training. Furthermore, and notably, the law firm did not charge clients for his work. As such, in all the circumstances, Commissioner Johns held the main benefit from the arrangement flowed to Mr Klievens and dismissed his unfair dismissal application.

LESSONS FOR EMPLOYERS

While this decision was favourable to the employer, there have been a number of other decisions where the Fair Work Ombudsman successfully prosecuted companies for utilising unpaid or underpaid interns. For instance, in Fair Work Ombudsman v AIMG BQ Pty Ltd [2016] FCCA 1024, the Federal Circuit Court imposed a penalty of almost $300,000 on a media company that had failed to pay an intern for 180 hours of work and committed various other breaches of the FWA.

This decision provides a timely reminder of the importance of ensuring that if your business is offering any type of work placement, internship or unpaid training you are well informed of your legal position and not incidentally creating an employment relationship, thus potentially exposing yourself to underpayment claims and other risks, including penalties.

We recommend that before recruiting any person to undertake unpaid work, employers:

  • carefully assess whether the arrangement is genuinely vocational and in connection with a training or education requirement within the meaning of the FWA;
  • whether the placement is for the benefit of the employer or genuinely for the purpose of allowing the intern to obtain experience and insight to the area of work;
  • whether, on balance, any employment relationship is likely to exist based on the common law factors considered by the Courts; and
  • if the arrangement is for all intents and purposes a legitimate internship or work experience opportunity, that this is reflected and properly recorded in an appropriate offer letter.

If you wish to further discuss the steps that can be taken to mitigate the legal risks associated with unpaid workers or have an employment matter for which you require assistance, please do not hesitate to contact us for specialist advice.

This alert is not intended to constitute, and should not be treated as, legal advice.

Government Passes Far Reaching Legislation Affecting All Employers

The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (“The Bill”) has passed the Parliament, after the House of Representatives yesterday accepted amendments made in the Senate. The new law will apply from the day after the Bill receives royal assent, except for the new franchisor and holding company liability provisions (discussed below) which will start six weeks later.

The Bill was introduced as a response to the underpayments and exploitation of vulnerable workers within some of the 7/11 franchisees as well as similar subsequent scandals with Caltex, Yogurberry, Pizza Hut and Dominos. The Bill will introduce a number of initiatives to increase deterrence and punishments in relation to systematic exploitation of vulnerable workers. It also strengthens the power of the workplace regulator, the Fair Work Ombudsman.

The Bill will amend the current Fair Work Act 2009 (Cth) (“FWA”) and will include the following features:

  • Introducing a higher scale of penalties for ‘serious contraventions’ of prescribed workplace laws.
  • Increasing penalties for record-keeping failures.
  • Making franchisors and holding companies responsible for underpayments by their franchisees or subsidiaries where they knew or ought reasonably to have known of the contraventions and failed to take reasonable steps to prevent them.
  • Expressly prohibiting employers from unreasonably requiring their employees to make payments (e.g. demanding a proportion of their wages be paid back in cash).
  • Strengthening the evidence-gathering powers of the Fair Work Ombudsman (“FWO”) to ensure that the exploitation of vulnerable workers can be effectively investigated.

Introducing a higher scale of penalties for ‘serious contraventions’ of prescribed workplace laws

The Bill will substantially increase the maximum civil penalties that apply for ‘serious contraventions’ of the FWA. This is where an employer is found to be engaged in a systematic and deliberate pattern of conduct that undermines the FWA. In such cases, the maximum penalties for serious contraventions will increase to $630,000 for body corporates and $126,000 for individuals.

Increasing penalties for record-keeping failures

The new law will double the maximum penalties for record-keeping and pay slip breaches, to $12,600 per contravention for individuals and $63,000 for companies, and triple existing penalties for cases where employers give false or misleading pay slips to workers, or provide the FWO with false information or documents. The explanatory memorandum recognised the importance of proper record-keeping in determining compliance under the FWA. It is interesting to note that last financial year two-thirds of the FWO’s prosecutions involved alleged record-keeping or payslip contraventions.

Making franchisors and holding companies responsible for underpayments by their franchisees or subsidiaries where they knew or ought to have known of the contraventions and failed to take reasonable steps to prevent them.

Under existing laws, a person may be held responsible for being ‘involved in’ a contravention, even if they are not the direct employer. The current accessorial liability provisions however, require that the individual or company had knowledge of the contraventions and was “involved in” the contraventions. These provisions have no application and thus, there is no accessorial liability if a person genuinely ‘did not know’ about the contravention.

The new provisions will hold franchisors and holding companies responsible for certain contraventions of the FWA by businesses in their networks if they knew or could reasonably be expected to have known that the contravention would occur, or that contraventions of the same or a similar character were likely to occur and they had significant influence or control over the companies in their network. This means that the responsible franchisor does not require actual knowledge of contraventions by franchisees. In order to attract liability, it would be enough if the franchisor was reasonably expected to have known about the contraventions.

The explanatory memorandum clarified that the changes are aimed at franchisors and holding companies that have established agreements and subsidiaries in their corporate structure that operate on a business model based on underpaying workers. In particular, some of these franchisors and holding companies have either been blind to the problem or not taken sufficient action to deal with it once it was brought to their attention. The new responsibilities will only apply where franchisors and holding companies have a significant degree of influence or control over their business networks.

The franchisor or the holding company will not be taken to have contravened the provisions if it had taken reasonable steps to prevent the kind of contraventions which occurred. The requirement to take reasonable steps is a requirement to take steps that would be reasonable in the circumstances. The FWO website identifies a number of practical steps franchisors and holding companies can take in order to assist in understanding and meeting their obligations.

Expressly prohibiting employers from unreasonably requiring their employees to make payments (e.g. demanding a proportion of their wages be paid back in cash).

The Bill will amend the FWA to expressly prohibit employers from directly or indirectly requiring an employee to give ‘cashback’ or pay any other amount of the employee’s money, or the whole or any part of an amount payable to the employee, in relation to the performance of work (whether to the employer or another person). The maximum penalty for a contravention under this amendment will be $126,000 for individuals and $630,000 for corporations. This amendment follows a number of shocking revelations where it was found that certain companies had been demanding employees return a portion of their wages under the threat of losing their job or breaching their visa. Many of these workers had limited English and/or were employed on work visas. However, this provision may also affect those employers who require employees to buy their clothing (for example) in order to work in their stores.

Strengthening the evidence-gathering powers of the Fair Work Ombudsman to ensure that the exploitation of vulnerable workers can be effectively investigated.

The amendments will grant the FWO new evidence gathering powers similar to those already available to corporate regulators such as ACCC and ASIC.

The FWO will be able to issue a “FWO notice” to any person the FWO believes may have information relating to an investigation or is capable of giving evidence relevant to the investigation. Under the notice, a person may be required to give information, produce documents, or attend before the FWO to answer questions. There will be a number of safeguards in place to ensure these powers are exercised in a fair and consistent manner.

There are penalties associated with a failure to comply with a FWO notice.

ADDITIONAL INFORMATION

Across Australia, there has also been an increase focus on labour hire companies, which commonly employ migrant workers to work in low paying positions. In response, a number of Australian States are looking at introducing legislation which will require labour hire companies to obtain a licence and demonstrate compliance with Work Health and Safety laws, workers compensation and other employment laws.

These initiatives have come about after a series of enforcement actions by the FWO against labour hire companies found to be exploiting migrant workers. In particular, the FWO instigated a national inquiry into exploitation of overseas workers on Australian farms, after a Queensland labour hire operator was severely penalised for underpaying 144 employees. The FWO were also recently successful in penalising a NSW cleaning company where the FWO successful argued that the company was treating their migrant workers as “slaves” under questionable labour hire arrangements. The company received a penalty of $370,000 and ordered to back pay $222,244 to 49 employees. The individuals with control of the company were also personally penalised.

LESSONS FOR EMPLOYERS

Given the far reaching implications of this Bill, all franchisors and holding companies are advised to take immediate proactive steps to address any non-compliance within their network. Furthermore, in light of the FWO’s tough stance on ensuring businesses are complying with their obligations, we encourage all business including business that use labour hire agencies to also take steps to ensure they are meeting their legal obligations as well as the labour hire agency. In this regard, we have outlined some key steps to assist businesses to address any non-compliance:

  • Complete a thorough audit on your business and/or associated businesses, subsidiaries and network;
  • Review Franchise Agreements or provisions which may encourage or assist franchisees to circumvent their workplace law obligations;
  • Review Franchise Agreements to ensure it contains provisions requiring franchisees to behave appropriately and pay their employees in accordance with legal requirements;
  • Conduct appropriate due diligence and reviews in relation to engaging employees from a labour hire agency including ensuring the wages paid for the labour hire employees are sufficient to discharge the required liabilities;
  • Review all wages to ensure any employees within your network are being paid correctly including any overtime, superannuation and penalty rates owed to them;
  • Establish practical steps and processes to allow employees within the business network to report any potential underpayment to the business;
  • Ensure there is adequate and regular training for franchisees, directors, business owners, managers, team leaders and other relevant personnel;
  • Review all current record keeping procedures and process for employees including the record keeping of wages, superannuation, annual leave, personal leave and ensure employees are receiving payslips with the required information set out by the FWA; and
  • Ensure FWA compliance is a standing item on the Board Meeting agenda.

If you or your business partners would like any assistance with regard to ensuring your workplace compliance, including conducting the relevant workplace and record keeping audits, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.

Employee Remuneration: It all Starts with the Dollars and Cents

The ability to attract and retain talented staff greatly benefits an organisation’s ability to sustain a competitive advantage. The loss of a key employee can have a significantnegative impact the business. Remuneration plays an important factor in the attraction, engagement, motivation and retention of employees. Employers need to be well aware of their obligations surrounding this sensitive subject as well as considering what, in addition to salary, their organisation may offer an employee to improve engagement and motivation within their business.

Remuneration

An employer’s obligation to pay wages upon receipt of services by the employee arises as a consequence of the existence of an employment relationship. However, while this obligation is a necessary requirement of the employment contract, the minimum quantum of wages that the employer must pay is governed by statute and other statutory instruments.

Minimum Wages

Modern awards and enterprise agreements set minimum wages for those employees covered by a modern award or an enterprise agreement. Award wages, and the national minimum wage, are determined by annual reviews conducted by the Fair Work Commission. Employers can pay wages in excess of the minimum, but cannot contract to pay less than the award or Fair Work Act 2009 (Cth) (“FWA”) provides. The FWA provides that employers must pay their employees minimum wage entitlement in money (cash, cheque or electronic funds transfer). An employer who pays their employees by some other means (e.g. store vouchers or goods) will find that employees can still recover their full wage entitlement in money, without any set-off for the value of the goods.

The FWA also prohibits employers from deducting money from employees except in very specific circumstances such as for salary sacrificing arrangements, overpayment of wages and the like. All other set off amounts must be for the benefit of the employee and with their express consent. This means that amounts paid to employees in error, or as loans, or where an employer has provided a benefit which it wishes to have reimbursed, can only be set off with the employee’s express consent.

Loadings, Penalty rates and Allowances

Awards and enterprise agreements often require some form of loading or premium to be paid for particular work. Casual employees are generally entitled to a loading on top of their hourly or weekly rate. It has also been the norm for modern awards to set penalty rates to provide compensation for overtime work and/or work during ‘anti-social’ times (such as night, weekends and public holidays). We note there has been a more recent decision to reduce penalty rates in the hospitality, retail and fast-food industries.

Furthermore, many awards and enterprise agreements provide allowances to be paid in certain circumstances, such as for dirty work, provision for tools, travel away from normal place of work or high duties. These amounts must be paid in addition to the minimum wages set in the award. The workplace Ombudsman is vigorously prosecuting employers who fail to make the appropriate payments even if they are paying the correct minimum wages. Many employers however believe that merely by paying their employees more than the minimum required by a relevant award or enterprise agreement, they no longer need to pay the loadings, penalties or allowances. This is entirely incorrect and can lead to significant under-payment claims. If employers do wish to pay “all up” rates, they need to ensure they have complied with all award requirements. These requirements may include providing notice to employees that the remuneration is an all up rate. For example the Clerks Private Sector Award required an employer who wishes to pay an annual salary or all up rate to specify in writing to the employee the award entitlements that are “set-off” by the all up rate. It is very important that the written contract of employment address this issue so as to ensure the organisation can rely on a set-off argument. If this is not properly dealt with the organisation may find that despite paying its employees inflated salaries, they are still liable for penalties and allowances.

Bonuses and Incentives

Many organiations use bonuses and incentive payments as a way to motivate and incentivise employees. However, badly constructed or implemented bonus/incentive schemes may actually result in significantly demotivating employees and lead to possible protracted disputes and litigation. Bonus or incentive schemes are common for executives or professional level employees, who are typically eligible to receive cash payments and/or share allocations or options. Some incentive schemes reward individual merit, whereas others may be based on performance of a division or the organisation as a whole. The structure of an incentive scheme and how it operates in practice should be carefully considered. It would be most unfortunate for example, if an incentive scheme incentivised employees to take unnecessary health risks which put their safety in jeopardy. Such schemes were not uncommon in the manufacturing industry, where performance bonuses were provided on the basis of productivity, which then encouraged employees to by-pass safety mechanisms on machinery in order to speed up production.

Bonus or incentive schemes are often at the employer’s discretion as to the assessment of an employee’s performance, or the quantum of any bonus or share offering. In circumstances where an employee feels the discretion has been exercised arbitrarily or vindictively, it is far more likely to have a negative impact than positive, regardless of the quantum of the bonus paid. While discretionary bonus and incentive payments are the norm and may mean that the employee has no right as such to be rewarded, where such entitlement to participate in a bonus or incentive scheme is incorporated in the contract of employment, even if it is entirely discretionary, there may be an implied obligation not to exercise the discretion capriciously or arbitrarily, and thus create a contractual right to a payment.

Relevantly, the decision of Silverbrook Research Pty Ltd v Lindley [2010] NSWCA 357 considered the issue of whether an employer had any contractual obligation to pay a discretionary bonus scheme. In this case, Robyn Lindley was employed by Silverbrook Research Pty Ltd (“Silverbrook”) on an annual salary of $210,000. Her contract provided that her salary was to be reviewed annually, although Silverbrook was not obliged to increase the salary. The agreement also provided that Ms Lindley was eligible for an annual performance bonus subject to her meeting performance objectives set by Silverbrook each quarter. Ms Lindley ceased working for Silverbrook and at no stage during her employment was her salary increased or reviewed. Furthermore, no objectives were ever established by which the bonus could be measured. Accordingly, Ms Lindley was never paid a bonus.

Ms Lindley commenced proceedings in the District Court of NSW. The Court held that Silverbrook had breached the agreement by failing to review Ms Lindley’s salary annually. The Court also determined that Ms Lindley had lost the opportunity to meet the objectives that would have paid her a bonus. Consequently, Ms Lindley was successful and damages of $74,000 were awarded by the Court. However, Silverbrook appealed the finding to the NSW Supreme Court.

Silverbrook argued that salary increases or bonuses were entirely a discretion, no matter how well (or badly) the employee had performed. The company merely exercised the discretion it had, not to pay any more than the starting salary. Accordingly, they maintained that Ms Lindley had not proved damage because the decision to pay the bonus was entirely at Silverbrook’s discretion.

The Court of Appeal held that the decision as to whether Ms Lindley should receive the bonus was entirely within the discretion of Silverbrook, however it should not be construed as to permit Silverbrook from withholding the bonus capriciously or arbitrarily or unreasonably. The Court accepted, that while Silverbrook had not made a promise to pay the bonus, it had promised toformulate KPIs and undertake a process of reviewing Ms Lindley’s performance with a view to her obtaining a bonus in the event the result of the process was favourable. The Court further stated that a discretionary clause should receive a reasonable construction and not permit the employer to choose arbitrarily or capriciously or unreasonably that it need not pay the money once the set objectives have been satisfied.

This decision highlights the importance of ensuring employers do not act unreasonably when choosing to exercise their discretion. It is common for employer’s to not want to pay a bonus to a departing employee. However, in light of this decision, if an employer chooses to exercise their discretion there should be a reasonable basis to do so and ensure that basis is recorded. In addition, the contract of employment should specifically set out that incentive payments are not payable if the employee is no longer employed or serving out a period of notice.

Remuneration Packages and Benefits

It is common for employers to provide additional benefits as part of the remuneration package. Such benefits are usually provided to high-salary employees not covered directly by awards or enterprise agreements and may include additional superannuation, low interest loans, provisions for a motor vehicle or vehicle allowance, telephone allowances, accommodation or additional benefits such as paid meals. The value of these additional benefits can be substantial and significantly assist in attracting and retaining talented employees in a competitive market. If additional benefits are provided to employees, it is important that the employer carefully consider whether the benefit forms part of the individual’s remuneration (or not). If the benefit does form part of the remuneration it may be included in the calculation of severance or termination payments. There may also be unintended consequences where for example an employer provides an employee with accommodation and treats the value of the housing as part of the remuneration. In such circumstances, the employee may then have rights as a tenant under relevant State tenancy legislation, meaning that the employer may then be obliged to provide the employee far longer notice to vacate the premises at the termination of employment than is otherwise provided by the notice provision in the contract of employment.

In light of the above, it is abundantly clear that employee remuneration should be carefully considered to ensure it meets the relevant objectives of the employer and is set to comply with all legislative requirements. Employers should also be weary to ensure that realistic performance based incentives are created for employees that are achievable and do not encourage self-interested behaviour or unsafe work practices. Most importantly, remuneration should be considered holistically and not just as a number.

If you wish to discuss the different remuneration models that can be used to incentivise staff and increase workforce engagement, or the best practice contractual terms regarding this area, please do not hesitate to contact us.

If you wish to discuss any aspect of this article or require specialist advice or assistance inrelation to your employment relations framework, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.

FWO WARNING “GET YOUR HOUSE IN ORDER”

Fair Work Ombudsman Warning to Employers

The Australian Government has consistently signalled that it intends to ensure companies who do not pay their employees properly or who have breached the workplace laws will face significant penalties. Given the numerous high profile cases in which employee have been underpaid by their employer including companies such as 7Eleven, and Dominos, this has become an important issue for both the Australian Government and the Fair Work Ombudsman. The Fair Work Ombudsman, Natalie James, recently warned businesses “to get your house in order” ahead of the Turnbull government’s new laws to increase penalties for contraventions in relation to workplace laws.

Ms James recognised that most employers wanted to do the right thing but advised that the mere intention of doing the right thing was not enough. She stated “smployers need to take tangible action on an ongoing basis to ensure they are paying the right rates and keeping appropriate records to demonstrate this.”

In particular, Ms James discussed the introduction of the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (“the Bill”). The Bill if it becomes law aims to enhance the penalty framework for breaches of workplace laws. The Bill introduces new penalties, 10 times the current levels, for serious contraventions where the conduct was deliberate and part of a systematic pattern of behaviour. Additionally, the Bill seeks to increase penalties for record keeping failures; make franchisors and holding companies responsible for underpayments by their franchisees or subsidiaries in circumstances where they knew or ought reasonably to have known of the contravention; prohibit employers from unreasonably requiring employees to make payments (e.g. demanding a proportion of employee wages to be repaid in cash) and strengthen the evidence gathering powers of the Fair Work Ombudsman to conduct investigations.

The matter of underpayments and the failure to provide modern award entitlements has been canvassed in our previous alerts. However, the issue of record keeping is just as important. Unfortunately, many businesses fail to keep proper records in accordance with legislative requirements. This is an area to which the Fair Work Ombudsman appears to be paying particular attention with almost half of the matters commenced in the last financial year involving allegations of record keeping failings and almost a third of all matters including allegations of false or misleading records. Ms James specifically referred to the 2014-2015 Records and Resources Campaign which was aimed at checking whether businesses were doing the right thing and ensuring employers were aware of their workplace responsibilities. The campaign also found that 84% of errors identified was in relation to pay slips or record keeping. As part of this campaign, $620,000 was recovered for 336 employees. Unfortunately for one business in particular, despite the fact that it was found it had misunderstood the relevant modern award and applied the wrong rate of pay over several years, resulting in a significant underpayment claim, the employer was required to pay back over $500,000 to employees. It was also required to implement a new payroll system.

The Fair Work Ombudsman has stated she is currently continuing with an ongoing National Compliance Monitoring Campaign and will be checking employers have met their workplace obligations in relation to minimum wages, penalty rates/allowances, overtime rates and payslips and record keeping. It can be quite easy for employers to misunderstand or mistakenly apply the incorrect wage rate, legislation or modern award resulting in significant consequences for the business. However, the Fair Work Ombudsman’s current stance clearly demonstrates that ignorance or even an innocent mistake will not be a defence and that businesses must ensure their records and systems are updated and in order.

Ms James also discussed the Fair Work Ombudsman application of the accessorial liability provisions under s550 of the Fair Work Act 2009 (Cth). The accessorial liability provision has been used for some time now and allows liability to be extended to others in the business who are involved in a contravention. The accessorial liability provisions may extend to company directors or other advisers such as human resources personnel, accountants or other entities benefiting from the labour. Astonishingly, 92% of all matters filed by the Fair Work Ombudsman involved accessories in 2015-16. The FWO have been able to obtain a variety of orders including orders for accessories to pay penalties personally, freeze assets and to restrain future contraventions.

What Employers Need to Understand

The record keeping requirements are contained in the Fair Work Act 2009 (Cth) (“FWA”) and the Fair Work Regulations 2009 (Cth) (“Regulation”). In particular, under the FWA an employer is required to make and keep employee records for seven years. The FWA also stipulates that an employer must provide a payslip to an employee within one working day of paying the employee in respect of their work. Both these are mandatory requirements and incur civil penalties.

The Regulation requires employers to keep records in legible English and each employee record must include the employee and employer’s name, whether the employee is full-time, part-time or casual, date employment commenced and terminated (if applicable) and the ABN of the employer. Employers must also maintain an employee record to include rate of remuneration, any deduction of wages, hours worked by each employee, details of any bonus, penalty rate, loadings or monetary allowance entitled to the employee, overtime hours, overtime pay, superannuation contributions (including name of fund, amounts, period over which the contributions were made) and if the employee is entitled to leave, any leave the employee takes and the balance of the leave entitlement. Additionally, if the employer and employee agree to an individual arrangement in respect of averaging hours, or entering into a guarantee of annual earnings, or the cashing out of accrued annual leave, employers must make and keep a copy of the written agreement as part of the employee personnel file.

In relation to payslips, the Regulation requires certain information to be provided in an employee’s payslip. These include the name of the employer, the employee’s name, the period to which the pay slip relates, the date on which the payment was made, the gross amount of payment, the net amount of payment, any amount to be paid as a bonus, loading, allowance, penalty rate, incentive based payment or other entitlement, the employer’s ABN number, the superannuation contribution and if the employee is paid an hourly rate, this should also be disclosed on the payslip as well as the number of hours worked. The Regulation enforces the above requirements by way of civil penalties.

Recent Fair Work Ombudsman Raids

The Fair Work Ombudsman has raided 80 businesses this week alone in Wollongong, NSW in response to complaints of underpaid young workers. These raids are said to be in the wake of increasing awareness of the widespread underpayment and in some cases, non-payment of university students by cafes, restaurants, retail and take-away food outlets.

The Fair Work Inspectors specifically interviewed business operators and workers and checked records to ensure workers were being paid minimum hourly pay rates, penalty rates overtime and allowances as well as their compliance with record keeping and pay slips requirements.

Lessons for Employers

In light of the above and with further changes to the legislation looming, it is critical businesses have implemented and are consistently following correct processes and practices for their business. Employers should consider and review the following within their business:

  • Ensure your business record keeping practices are up to date and in order;
  • Ensure you are providing appropriate payslips to employees (these should include the record of superannuation and leave accruals);
  • Review whether you are applying the correct modern award or relevant legislative instrument to your employees;
  • If you are a franchisor or holding company, ensure your franchisee or subsidiaries are compliant with their workplace obligations;
  • Ensure correct wages, penalty rates and allowances are being paid to employees (including minimum engagement payments);
  • Ensure you are paying correct superannuation, tax and employee entitlements; and
  • Provide proper and adequate employment contracts to your employees.

If you wish to discuss any aspect of this article or require specialist advice or assistance in relation to an employment law matter, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.

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