A busy week for wage theft: record penalties imposed and two class actions launched

Yesterday, the Federal Court imposed record penalties of $891,000 against the operators of three Hero Sushi takeaway outlets for underpaying workers and providing false records to the Fair Work Ombudsman (FWO). The decision follows two class actions being launched in the last week against retail giants over wage underpayments: one against convenience chain OTR over wage underpayments of allegedly up to $70 million, the other against Coles for alleged wage underpayments of up to $150 million.


Wage underpayments still an issue

It was only a short while ago (but it probably seems a lot longer) when news of businesses, big and small, admitting to underpaying their staff dominated the media space. While COVID-19 has since taken over, we are reminded by these developments in the last week that wage underpayments are still ongoing, the FWO continues its job regardless of COVID-19, and that the issue is not going away anytime soon. While employers have no doubt had their hands full with COVID-related employment issues in recent weeks, these claims serve as a timely reminder that the new annualised salary provisions under a number of Modern Awards are now in force and employers should be aware of, and be complying with, their obligations.

The Hero Sushi case

Two corporate entities which operate Hero Sushi outlets in Newcastle and Canberra respectively, have each been penalised $225,000 and another entity in the group, which operates a Hero Sushi outlet on the Gold Coast, has been penalised $150,000.

In addition, company directors and owners Deuk Hee “William” Lee and Hokun “Robert” Hwang have each been penalised $85,000, and payroll officers employed at the Hero Sushi head office, Chang Seok “Tommy” Lee, Ji Won “Brian” Cho and Jung Sun “Jimmy” Kim, have been penalised $75,000, $16,000 and $30,000, respectively.

The Court found that 94 workers across the three Hero Sushi outlets were paid flat rates as low as $12 an hour, resulting in underpayments of $700,832.88 between April 2015 and July 2016. Many of the workers were young overseas workers, including Korean and Japanese nationals on international student and working holiday visas.

In imposing the penalties, Justice Flick stated, “Those in a position to ruthlessly take advantage of others pursued their goal of seeking to achieve greater profits at the expense of employees…the quantum of the penalties to be imposed has to be such that they are not seen as simply the 'cost of doing business' in the fast food industry.”

Class actions

OTR is South Australia's largest private employer and could face repaying between $50-$70 million in wages to up to 8,000 current and former employees, going as far back as 2014 if the claims are made out. The Coles class action is seeking to recoup more than $150 million in unpaid wages for up to 500 current and former salaried managers at Coles supermarkets and liquor stores, also going as far back as 2014. The Coles class action claims that the salaried managers were paid for their ordinary hours only (i.e. 38 hours/ week) but not for any additional overtime hours worked. Although the Coles class action was foreshadowed in February 2020 when Coles revealed that it had underpaid its salaried employees an estimated $20 million, the estimated value of the underpayments in the class action proceedings are significantly higher.

What are employers' obligations under the new annualised salary provisions?

As readers are no doubt aware, in response to concerns of widespread underpayments across multiple industries, the Fair Work Commission varied 19 modern awards (including the Clerks Award, Manufacturing Award and Banking, Finance & Insurance Award) from 1 March 2020 to new insert annualised wage arrangements. If utilised by an employer, the annualised wage provisions generally require the employer to notify award-covered full-time employees of how the employee's annualised wage has been calculated (including overtime and penalty rates, allowances and leave loading). The intention is that the annualised salary should not fall below what the employee would receive had they been paid their entitlements under the relevant award each pay period.

The deadline for compliance with the new annualised salary rules was the first pay period after 1 March 2020, which coincided with the COVID-19 pandemic being declared on 11 March 2020.

Under the new provisions, employers are obliged to:

  • notify employees of how their annualised salary has been calculated – including any assumptions to overtime and penalty rates, allowances and leave loading
  • set the 'outer limit' of overtime hours before the employee is entitled to additional pay (and consequently paying the employee if they worked in excess of the outer limit)
  • keep records of each employee's annualised wage arrangement, start and finish times, and unpaid breaks taken
  • keep records of each employee's signed acknowledgment that the record of hours they've worked every pay period or roster cycle is correct
  • undertake a reconciliation every 12 months from the commencement of the arrangement (or when the arrangement or employment ends) to ensure that the employees have been paid at least what they would have been entitled to under the applicable award if they were not on an annualised salary.
Although it appears that there is the option for employers to decide to not follow the annualised salary arrangements in any applicable Award and either implement or continue to rely on set-off clauses in their contracts of employment, this still requires an employer to satisfy itself and its employees (and potentially one day also the FWO), that it has paid its employees a sufficiently high enough salary to absorb all Award derived entitlements that would otherwise have been payable.

The penalties being imposed by the Courts for underpayments and the recent class actions launched against OTG and Coles are important reminders that businesses should still be compliant with their obligations to pay employees correctly, whether that is paying the correct hourly rate, overtime and penalty rates or whether it is through an annualised salary under a common law contractual set off provision in the contract of employment or under any annualised wage arrangement. This remains the case even during these unprecedented times where COVID-related employment issues become the priority.

Defending or reconciling an underpayments claim can be a very costly exercise for employers and with cash-flow now tight for many businesses during COVID-19, it could be the undoing of a business. We are seeing claims by disgruntled employees on the rise, particularly in the JobKeeper division of the Fair Work Commission and in the number of unfair dismissal claims being made. Employers can expect employees to become more vigilant than ever about their entitlements as wage increases are halted and jobs are on the line. Maintaining accurate records, performing audits and reconciling any underpayment as soon as it is discovered are all key in managing the risks.

Please note this information is a guide only and does not constitute legal advice. If you have any questions regarding your obligations to pay your employees correctly or need assistance with auditing your payments, please get in touch with McCabe Curwood's Employment group.


Liliana Freeman Lawyer