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HR Manager fined $105,000 and employer almost $4 million after employees underpaid by $157,000

The Court found the HR Manager complicit in underpaying employees and training others in a payroll scam.

25 Apr 2024

Mike Toten

Mike Toten is a freelance writer, editor and media commentator.

The Federal Court has fined a restaurant chain $3.89 million and its HR Manager $105,084 for deliberately underpaying 17 employees, a total of $157,025 over a four-year period. The Court found that the HR Manager knew the employees were being underpaid and was complicit in a deliberate plan to do so. She trained and instructed others on how to implement a payroll scam.

The employer’s General Manager was also fined $92,232.

Facts of case

The employees were migrants on 457 visas, student visas or temporary visas. They were told to work at least 55 hours per week. Otherwise, any shortfalls would be deducted from their annual leave entitlements. The HR Manager told the Payroll Manager to keep records of working hours and pay that recorded that each full-time employee worked 76 hours per fortnight and was paid a set salary, regardless of what actually happened. She also told him to record casual employees as working fewer hours than they actually did and to ensure that pay slips did not record any cash payments.

The Fair Work Ombudsman also applied for penalties against the General Manager and HR Manager. Each claimed that penalties would cause them severe financial hardship, and they had not stood to gain from the scam. The HR Manager also claimed it would force her to sell her share in her home.

Decision

The Court commented that the Director had very strong control over what happened in the business. Fining the two companies he directed $3.89 million, it said that his misconduct went beyond deliberate wrongdoing and was “extremely serious”. He oversaw a scheme that deliberately sought to rob employees and deceive the authorities. The latter included the Fair Work Ombudsman, the Department of Home Affairs and the Australian Taxation Office. Almost all the employees were young and on temporary visas, so they were particularly vulnerable. The employer had deliberately hired those types of employers because they were easier to exploit.

The General Manager and HR Manager submitted evidence that suggested they were very low-paid for their job levels. However, the Court found that they were likely paid extra in (unrecorded) cash. It also concluded that both were likely to reoffend and had shown no contrition.

The HR Manager was knowingly involved in the breaches and was fined $105,084. The breaches were of award provisions, record-keeping and pay slip requirements, and forcing employees to work excessive hours.

The employer’s fine of $3.89 million (split between two respondent companies) is the second-highest ever recorded.

The Court also ordered that the 17 employees be backpaid, totalling $157,025.

What this means for employers

Where breaches of the Fair Work Act 2009 occur, such as deliberately underpaying employees, courts have the power to financially penalise employees involved in the breaches as well as the employer’s business.

Note that one of the aims of the Federal Government’s “closing loopholes” legislation is to strengthen the sanctions against underpaying employees and increase the protections against it.

The judgment provides a lengthy discussion of the factors courts will consider when calculating the penalties to be imposed.