Employer cries foul after FWO jumps the gun

Cases

Employer cries foul after FWO jumps the gun

A court has reduced a penalty for pay breaches after finding a restaurant was adversely affected by premature 'publicity' from the Fair Work Ombudsman.

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A court has reduced a penalty for pay breaches after finding a business was adversely affected by premature 'publicity' from the Fair Work Ombudsman.      

Facts and background


The respondent, The Meatball and Wine Bar, operates three Italian restaurants in Melbourne. On September 8 2016 the company’s Richmond-based restaurant was inspected as part of the Victorian Street Food Precinct Campaign conducted by the Fair Work Ombudsman (FWO).

On September 15 2016, the FWO requested wage records from the Richmond restaurant for the pay period 12-18 September and the respondent complied.

In October that same year, in response to a further notice, the owners provided employee records from July to October 2016.

In May 2017 an inspector informed the owners that a review of their records revealed seven employees were not paid the minimum rate, 20 were not paid sufficient casual loadings, 10 were not paid sufficient overtime payments and three employees were not paid sufficient weekend penalties. The inspector found another three employees had not been paid sufficient additional payments for work between 10pm and midnight on week days and one employee was not sufficiently paid for split shifts work.

The respondent began rectifying these underpayments in June 2017. All underpayments were rectified one to two weeks after the employer was notified.

The owner, Mr Matteo, told the commission that the Richmond outlet was broken into in 2016 and the company’s point of sale system damaged. The company had to replace the point of sale system across all outlets and it was necessary to clear all old system data. This had led to the loss of employee records from the past seven years.

In August 2017 the FWO published a media release regarding its decision to pursue legal action against Mr Matteo and his company. In August 2018, articles regarding the legal action were published in The Age newspaper, Broadsheet and Hospitality magazines. The bad publicity resulted in the respondent’s restaurant being removed from Good Food Guide, their restaurants being vandalised and the loss of a partnership with the Australian Open.

The respondent attributed a projected sales loss of about $80,000 to the media release and said the adverse publicity led to the decision to close its butcher store and rebrand two of their restaurants. 

The law


The Meatball and Wine Bar contravened s45 by underpaying staff. Sec 45 states that an employer must not contravene a term of a modern award, in this case the Restaurant Industry Award, which lists the appropriate wage rates for restaurant employees.

The Meatball and Wine Bar failed to meet the terms of five clauses in the award by failing to pay seven employees the minimum pay (cl.20.1), 20 employees casual loadings (cl.13.1),  three employees weekend penalty rates (cl.34.1) and additional amounts for working after 10pm on a weekday (cl.34.2.)

The respondent also failed to pay nine employees overtime rates (cl.33.2) and one employee the required allowance for a broken work day (cl.24.2).

The applicant also alleges the respondent breached s535 of the Fair Work Act by failing to keep employee records for at least the past seven years.

In issue


Both parties agreed the respondent had contravened all these requirements. The issue was the amount the respondent should pay in penalties considering other circumstances surrounding the contravention such as, deliberateness, the respondent’s cooperation and the adverse impact of the FWO’s press release.

Arguments


The FWO sought orders for the respondent to be forced to pay pecuniary a penalty as allowed under s546 of the Fair Work Act. It argued that a penalty between $121,500 and $140,940 was appropriate considering the nature of the respondent’s contraventions. The FWO also argued the respondent was in breach of s535 by failing to keep employee records.

The respondent claimed that the underpayment of staff was unintentional. It said its lack of understanding of casual loadings and correct employee classification under the award was evident in the fact that some employees were accidentally overpaid.

It argued the company’s breach of s535 was unavoidable due to the break in and damage to its point of sales system. The company requested the penalty be reduced to between $31,320 and $44,280 due to the business’ lack of similar previous conduct, the inadvertence of the contraventions, the business’ poor financial circumstances and the damage and loss caused by the FWO’s press release.

Both parties agreed that the respondent should receive a discounted penalty for cooperating with authorities. The FWO argued that a 10% discount was appropriate while the respondent argued for a 20% discount.

According to s557 of the Fair Work Act, two or more similar contraventions committed by the same person can be grouped together as a single contravention. The respondent argued that the penalty underpayments should be grouped as a single contravention, reducing the number of separate contraventions from 10 to six. The FWO argued that only the contraventions regarding overtime payments should be grouped and that the respondent should be held accountable for eight separate contraventions.

Considerations

 
The Federal Circuit Court of Australia reasoned that any loss of pay to low paid employees in the hospitality industry would be significant to those employees.  The employees were vulnerable as they most likely relied on the employer to pay them correctly due to the complexity of wage calculations.

However, the court accepted that the company’s failure to keep employee records and failure to correctly pay staff were not deliberate. The court decided that the penalty payments should be grouped as a total of six contraventions. 

The court considered the company’s cooperation, financial circumstances and the importance of future deterrence when assessing the appropriate penalty.

The respondent’s initiative to rectify the underpayments was evident in its letters of apology and repayments to those underpaid staff.

The court acknowledged that the company’s financial situation had been negatively impacted by the FWO’s premature press release.

The court consulted a previous case where associated circumstances were taken into account when calculating the appropriate penalty. Adverse publicity, particularly that which results from the prosecuting authority publicising the matter ahead of trial, was found to require special consideration as there was a danger of cumulative punishment.

It was decided that the adverse publicity resulting from the FWO’s press release had caused injury to the Meatball and Wine Bar and Mr Matteo and that the press release had presented the accusations as facts before the commission had made a decision.

After considering the surrounding circumstances, the court found that a 20% discount on penalty was appropriate, emphasising that such discounts were important in encouraging cooperation with authorities and the fast correction of underpayments.

Decisions


The respondent was ordered to pay a total penalty of $31,320 for six contraventions: $6480 for the minimum wage contravention, $8640 for failing to pay casual loadings, $2160 for not paying penalty rates, $2160 for the split shift allowance and $6480 for not paying overtime.

The company was ordered to pay a further $5400 for breaching s535 of the Fair Work Act and not keeping employee records.

The bottom line: Restaurant owners must carefully consult the Restaurant Industry Award when calculating employees’ wages. If the company is found to contravene any provisions it will need to pay an appropriate penalty. The appropriate penalty will take into account the nature of the contravention as well as its surrounding circumstances.

Read the judgment 


Fair Work Ombudsman v The Meatball And Wine Bar
 
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