Australia: Are you paying your employees correctly? … Avoid an investigation by the Fair Work Ombudsman

Last Updated: 2 August 2017
Article by Michael Bishop, Amelita Hensman and Stefano Mazzeo

Recently the Fair Work Ombudsman (the Ombudsman) has been investigating a spate of underpayment of wages and overtime claims (Claims) and has commenced investigations into these Claims and the businesses allegedly perpetrating them.

Who is the Ombudsman and what are their powers when conducting an investigation?

The Ombudsman is an independent statutory office whose jurisdiction and powers are derived from the Fair Work Act 2009 (Cth) (the Act). The role of the Ombudsman is to ensure that all employers and employees comply with Australian workplace laws.

The Ombudsman has broad powers when conducting investigations. Upon commencing an investigation, the Ombudsman will collect and examine evidence in order to ensure the application of Australian workplace laws, determine what law should apply and in what circumstances, and consider whether the Act has been followed by the employer. In the event that the law has not been complied with, the Ombudsman will then consider and facilitate what must be done by the employer in order to remedy any non-compliance.

Once an investigation has commenced, Fair Work Inspectors (Inspectors) can request documents such as:

  • time and wage records;
  • employment contracts; and
  • any other documents which are pertinent to the investigation.

It should be noted that the Inspectors have the power to require an employer to provide these documents to them. In the event of non-compliance, fines of up to $10,800 (for an individual) or $54,000 (for a corporation) can be imposed.

Once the evidence has been examined, the Ombudsman will make a determination as to whether there is proof that non-compliance with the Act has occurred, and if so, what must be done to redress the issue. The outcome of an investigation where there has been non-compliance may result in one or more of the following:

  • Contravention letter – informing the contravening party that the law has been contravened and how they may go about redressing the issue;
  • Letter of caution – giving the contravening party a formal warning, which the Ombudsman may rely on in the future should they contravene the Act again;
  • Compliance notice – a notice issued by a Fair Work Inspector which requires an employer to fix a breach of an Australian workplace law;
  • Infringement notice – similar to an on-the-spot fine, it can be issued by a Fair Work Inspector to an employer who doesn't follow its record-keeping and pay slip obligations;
  • Enforceable undertaking – a written agreement between the Ombudsman and an employer who has not followed an Australian workplace law;
  • Compliance Partnerships – a collaborative relationship between the Ombudsman and businesses that want to publicly demonstrate their commitment to creating compliant and productive workplaces;
  • Referral to small claims – focuses on recovering small amounts of money and is faster and more informal than other court proceedings;
  • Litigation – the Ombudsman brings legal proceedings against an employer.

Should the Ombudsman find that the Act has been contravened, they will act to ensure the error is rectified, often informing the employer that an underpayment or contravention has occurred, which will often result in the employer being compelled to pay back wages that are owed to employees. In the event that the issues are not addressed, the case may then be referred to court for resolution, or the aggrieved party can initiate their own legal proceedings in the small claims court.

How does this affect employers?

The Ombudsman is focusing its attention on underpayment Claims. In particular, the Ombudsman has been active in the hospitality industry and initiated a number of significant investigations. This has resulted in wide spread media coverage and significant measures set in place to redress employer's non-compliance.

Examples include George Colombaris whose hospitality group Made Establishment was reported to have underpaid employees in excess of 2.6 million dollars. In addition, Adriano Zumbo's company 611 Pty Ltd was also reported to have been hit with claims of underpayment of wages and overtime in addition to failure to pay superannuation. Large employer Domino's Pizza Enterprises Pty Ltd is also being investigated by the Ombudsman for underpayment of wages.

Furthermore, the recent Court decision in Fair Work Ombudsman v Step Ahead Security Services Pty Ltd [2016] FCCA 1482 has evidenced that the Court is able to make compensation orders against accessories to contraventions under the Act, to remedy the loss caused by their contravention. Pursuant to section 550(1) of the Act, the Court can lift the corporate veil, allowing directors of companies to be held personally liable for breaches under their management of the company. In this case, the Court found that the company and its director had contravened the Act and ordered that the director of the company pay penalties in the amount of $51,400, in addition to the company being penalised $257,000 for its contraventions. The Court also ordered an injunction against the director to stop any future underpayments to employees.

How can this be avoided?

Simply, the best way to ensure that the above does not happen to your business is to be proactive about addressing concerns and issues as they may arise. Seeking legal advice to ensure that the relevant Award(s) applicable to your business have been applied correctly and any overtime payments are accurately being paid is a key step to avoiding an investigation by the Ombudsman.

The concern for all employers here is that, once an investigation has been commenced by the Ombudsman, it is inherently difficult to limit the scope of the investigation. Whilst a complaint may be made by only an employee, once the Ombudsman becomes involved they may investigate all employees in the business to ensure they are not being underpaid and the business is keeping accurate records and complying with its obligations to provide employees with payslips. Accordingly, it is advisable that employers who wish to avoid investigation by the Ombudsman ensure their employment contracts are reviewed periodically to ensure compliance and legal advice sought on the correct Award(s) to be applied to their employees.

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