Underpayments: 'ignorance' not a defence

Cases

Underpayments: 'ignorance' not a defence

The Federal Circuit Court has analysed transitional provisions in modern awards and determined a noodle bar was guilty of grossly underpaying workers.

WantToReadMore

Get unlimited access to all of our content.

The Federal Circuit Court has analysed transitional provisions in modern awards and determined that a noodle bar was guilty of underpaying workers.

The court considered provisions in modern awards as they applied to state instruments that were transitioning to the Fair Work modern award system.

Judge Cameron found in favour of the prosecution (Fair Work Ombudsman) in concluding that there had been gross underpayments of wages and penalty rates.

Background


Six staff were allegedly underpaid by a noodle bar (WXZ) from 2010 to 2013. The Ombudsman alleged that in total WXZ underpaid the employees $624,504.

Failed to keep records


The Ombudsman also alleged that WXZ contravened s536(1) of the FW Act because it failed to provide the employees with pay slips within one working day of wages being paid. This was found to be proven.

FWO argument on application of modern award transitional provisions


Specifying the correct instrument applying to the wages and conditions of the employees was important in properly calculating the extent of underpayment.

The Ombudsman argued that although the transitional provisions applied to the employees’ wages, they did not apply to their loadings and penalty rates. WXZ had not been in existence when the Workplace Relations Act was on foot, could not have employed any of the employees at that time and so could not have been subject to a NAPSA (notional agreement preserving state awards), according to this argument.

The court rejected the Ombudsman’s submission. It said the difficulty with that submission was that, if the facts of a particular case were relevant to the application of the relevant part of the transitional provisions in modern awards (as the argument implied), then the same reasoning also applied to employees’ wage rates. However, such an approach contradicted the Ombudsman’s position that the transitional provisions applied to ordinary time wage rates.

Purpose of transitional provisions


The court noted that the purpose of transitional provisions in modern awards was to provide, in respect of any particular job classification, a smooth and predictable transition from various different state rates to one national set of rates.

In a technical and detailed examination of the law the court explained :

‘... the employees, either as employees of Yummy Noodle Box or of WXZ, had never been covered by preserved APCSs [Australian Pay and Classification Scale]. The WR Act never applied to the employees because, during its operation which ceased on 30 June 2009, and in the subsequent bridging period during which parts of the WR Act continued to operate and which ceased on 31 December 2009, they were employed by the Yummy Noodle Box partnership and so their employment was governed by the laws of the States in which they worked.

'... The employees only came under Federal law on 1 January 2010 with the advent of the Division 2B State awards under the FW Act. ... Therefore, on the Ombudsman’s reasoning, even if WXZ had been an employer in the relevant industry or of the relevant occupations immediately before 1 January 2010, it would not have been bound by a transitional minimum wage instrument in relation to the employees because none of the employees was covered by one.

'[However,] there was no reason to think that the Modern Award sought to transition from Division 2B State awards in a manner different from the transition from NAPSAs and preserved APCSs ...’

The court added: ‘Indeed, there is reason to think that the intention was that the process be the same.’

The court pointed to a statement by Fair Work Australia which said:

‘We have decided that, so far as possible, the phasing schedule should apply to employers covered by Division 2B State awards in the same way as it applies to other national system employers ....’ (Award Modernisation – Division 2B State Awards [2010] FWAFB 8558 at [27]).

Interpreting transitional provisions


The court stated that: "To interpret the Modern Award’s transitional provisions in the way advocated by the Ombudsman appears to contradict the terms of the Modern Award’s transitional provisions. The meaning of an award’s provisions is to be determined by a construction of those provisions to determine their objective meaning. That analysis is not to be undertaken in a narrow or pedantic way.’

The court continued:

‘Relevantly for this case, the Modern Award’s transitional provisions will apply to an employer if that employer is one which, ‘if it had been an employer’ in the relevant industry or of the relevant occupations immediately before 1 January 2010 would have been bound by a transitional minimum wage instrument or an award-based transitional instrument (‘hypothetical employer test’).

'Those provisions do not rely on an individual employer’s particular circumstances but simply identify a hypothetical circumstance.

'Importantly, they do not suggest that any qualification or conditions precedent have to be satisfied before the hypothetical circumstance can be applied to an employer in order to see whether the Modern Award’s transitional provisions applied to it.

'The transitional provisions simply require the employer to be put in the shoes of an employer in the relevant industry or of the relevant occupations as at a specific moment, namely immediately before 1 January 2010. ...

'As a consequence I find that the Modern Award’s transitional provisions applied not only to the employees’ ordinary time wages but also to their loading and penalty rate entitlements.’

Calculations of underpayments


The court accepted as correct most of the Ombudsman’s calculations concerning underpayments. However, it rejected the argument that the transitional provisions did not apply to the employees’ loadings and penalty rates, therefore it rejected the FWO calculations of those entitlements.

The applicant and the respondents were to submit a proposed minute of orders setting out the amounts owed to the employees, including amounts for loadings and penalty rates under the modern award, calculated in accordance with the court’s reasons.

Judge Cameron pointed out that ignorance was no defence to allegations of liability as an accessory to breaches of statute.

The matter will be listed on a date to be fixed for the determination of penalties.

The bottom line: The application of the modern award system to state awards took place in stages. The transitional provisions were designed to achieve the transfer without injustice or unfairness to employees and employers.

Fair Work Ombudsman v WXZ Enterprises Pty Ltd & Ors [2018] FCCA 616 (16 March 2018)
Post details