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Pizza Hut franchisee slammed for sham contracting

Adam Zuchetti
Adam Zuchetti
15 June 2018 2 minute readShare
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The use of sham contracts and falsifying records in a bid to cover up the evidence have seen a Pizza Hut franchisee hit with penalties of more than $210,000.

Dong Zhao and his company Skyter Trade, which own and operate the Pizza Hut outlet at Upper Coomera on the Gold Coast, admitted that they breached sham contracting rules by insisting that one of its delivery drivers was an independent contractor and not an employee.

By doing so, Mr Zhao was able to pay the worker a maximum flat rate of $16 per hour, saving him $4.36 for ordinary hours and as much as $24.72 an hour on penalty rates offered under the Pizza Hut enterprise agreement.

The worker was also denied other entitlements including superannuation and uniform allowance during his employment, between November 2015 and May 2016. He has since been reimbursed in full, although the total amount was not disclosed.

“According to the evidence, he was the sole breadwinner for he and his wife and was responsible for their daily living expenses, rent, groceries and his wife’s tuition fees,” Federal Circuit Court Judge Michael Jarrett said in his verdict.

“The evidence is that (the driver) was responsible for paying all the running costs for his car that he used for all deliveries he performed for the respondents, as well as paying for replacement tyres, registration and insurance.”

The judge noted that Mr Zhao’s conduct was “serious” and “deliberate” given that Pizza Hut as the franchisor had advised him not to use such arrangements.

Furthermore, Judge Jarret found that Mr Zhao had actively and deliberately sought to deceive the Fair Work Ombudsman, which was conducting an audit of 34 Pizza Hut franchisees in 2016.

“The failure to keep proper records and to provide pay slips to employees is an insidious practice that is only aggravated by the creation and provision of false documents designed to conceal the employer’s wrong doing,” said the judge.

“Employers and those that control them ought to be under no misapprehension that the creation and provision of false records is a serious matter and will be treated seriously by the court.”

As a result, Mr Zhao was personally fined $36,700 while his business was slapped with a hefty $180,000 penalty.

The finding that the delivery driver was in fact an employee does not bode well for food delivery company Foodora, which is also currently before the courts for similar conduct towards three of its delivery drivers.

Ombudsman Natalie James warned that sham contracting, as in the Pizza Hut instance, is a key target for the FWO in conducting business audits and investigating complaints.

“Sham contracting is a priority for my agency not just because of the direct impact of these arrangements on individual workers but because those adopting sham contracting as a business model are availing themselves of an unfair competitive advantage by depriving workers of their lawful minimum employment conditions and protections,” Ms James said.

However Pizza Hut itself may not be off the hook. Under changes to the Fair Work Act that took effect last year, franchisors can now be held liable for employments breaches by its franchisees.

In penalising Mr Zhao, the court noted his claim that his business was pushed into losses for consecutive years due in part to “Pizza Hut Head Office’s policy to push all its shops into a ‘price war’ by selling cheap pizzas below food cost.”

“With the new laws setting clear expectations that franchisors need to consider how to prevent exploitation of workers, the guide provides practical advice to assist franchisors to promote sustained workplace compliance in their networks,” said Ms James.

Pizza Hut franchisee slammed for sham contracting
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Adam Zuchetti
Adam Zuchetti

Adam Zuchetti is the former editor of MyBusiness and a senior freelance media professional, specialising in the fields of business, personal finance and property. In 2020, he also embarked on his own business journey – inspired in part by the entrepreneurs and founders he had met through his journalistic work – with the launch of customised pet gifting and subscription service Paws N’ All.

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