The 5 Most Common Employment Pitfalls

The 5 Most Common
Employment Pitfalls
Is your business
protected?

The contents of this presentation are for information purposes only and do not
constitute legal advice.
If you have any particular concerns or queries, please contact our office for specific
advice.
Disclaimer

Employment law in Victoria is derived from 3 sources:
• Fair Work Act 2009 (Cth);
• Modern Awards or Enterprise Agreements; and
• Common law.
The legal framework

The impact on a business of non-compliance with employment laws can be
significant and can include:
• Distraction from running the business
• Staff issues including poor morale and lost productivity
• Substantial back-payments
• Prosecution by Fair Work Ombudsman seeking pecuniary penalties
Why does it matter?

• The Fair Work Ombudsman has broad reaching powers to investigate non-
compliance and ensure any underpayments are rectified
FWO complaints and audits 2006-2014
Fair Work Ombudsman
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
Complaints received 13,740.00 23,728.00 22,670.00 23,698.00 21,890.00 23,366.00 24,678.00 24,103.00
Complaints finalised 11,977.00 24,207.00 23,338.00 21,070.00 22,253.00 28,412.00 26,574.00 25,650.00
Underpayments recovered $13.5m $36.6m $32.5m $21.3m $26.2m $39.8m $20.5m $23m
No. of employee 6,754.00 15,842.00 28,648.00 9,823.00 16,088.00 18,497.00 12,134.00
$ per complaint $1,100.00 $2,310.00 $1,350.00 $2,168.00 $1,541.00 $2,152.00 $1,689
Audits and campaigns 3,119.00 4,800.00 7,080.00 3,678.00 6,779.00 6,547.00 5,675.00 4,567.00
Underpayments recovered $1.85m $13.4m $5.9m $4.9m $4.7m $6.16m $3.9m $4.0m

• Pecuniary penalties imposed on businesses for breaches of the FW Act and awards in
comparison to quantum of underpayments
Fair Work Ombudsman

• The most frequently complained about and litigated area is breaches of
wages and conditions
Fair Work Ombudsman

• The maximum amount of penalties for breach have increased 54.5% since
28 December 2012
• The current maximum penalties for each breach are:
 $10,200 for an individual; and
 $51,000 for a corporation.
• Most prosecutions by the FWO relate to multiple breaches and seek the
imposition of penalties on both the employer entity, the Directors or
Managers and others involved in the breaches
Fair Work Ombudsman

• Directors and others who run businesses must ensure that the employing entity
complies with its employment law obligations to avoid personal liability
• The accessory liability provisions in the FW Act are a commonly overlooked source of
potential personal liability
• Section 550(1) of the FW Act provides that “A person who is involved in a
contravention of a civil liability provision is taken to have contravened that provision”
• Section 550(2) further provides that “a person is involved in a contravention if, and
only if, the person:
a) has aided, abetted, counselled or procured the contravention; or
b) Has induced the contravention, whether by threats or promises or otherwise; or
c) Has been in any way, by act or omission, directly or indirectly, knowingly concerned in or
party to the contravention; or
d) Has conspired with others to effect the contravention.
Accessorial liability

Fair Work Ombudsman v Ross Geri Pty Ltd & Ors [2014] FCCA 959 (6 June 2014)
• A Strathfieldsaye security business was prosecuted in the Federal Circuit Court for
various contraventions of the FW Act and pre-reform award that occurred between
2006 and 2011
• The underpayments to 4 casual employees totalled $89,117
• The business paid flat rates to its staff that did not meet minimum requirements for
overtime rates, shift loadings, weekend and public holiday penalty rates
• The Court imposed fines totalling $147,708 for 8 categories of contraventions:
 Company $110,880
 The husband Director $22,176.00; and
 The wife employee (responsible for payroll) $14,652.00.
Recent case

Fair Work Ombudsman v Ross Geri Pty Ltd & Ors (continued)
• Fines of $147,708 were imposed despite:
 The company being “a relatively small, family owned and operated business in a
regional town” with few assets
– ‘No less than large corporate employers, small businesses have an obligation to meet
minimum employment standards and their employees, rightly, have an expectation that
this will occur. When it does not it will, normally, be necessary to mark the failure by
imposing an appropriate monetary sanction. Such a sanction must be imposed at a
meaningful level’
– ‘Employers must not be left under the impression that because of their size or financial
difficulty that they are able to breach an award. Obligations by employers for adherence
to industrial instruments arise regardless of their size. Such a factor should be of limited
relevance to a Court’s consideration of penalty.”
 A recent quarterly profit and loss statement showing a net loss of $383,496.46
 In addition to the underpayments of $89,117, the Respondents had incurred
nearly $80,000 in legal fees
Recent case

Fair Work Ombudsman v Ross Geri Pty Ltd & Ors (continued)
• In relation to a statement from the husband Director below, the Court held that “these
consequences are an inevitable result of proceedings under the FW Act, and are of no
relevance to the question of penalty”.
 “Working 7 days a week can be stressful as it is having limited time to spend with family. But
the ongoing emotional toll trying to get through the unknown of the Fair Work case has been
unbearable at time. It has caused a wedge in my marriage, I’m often unable to spend quality
time with my son due to the fact that I need to work 24 hour shift just to get some money
back into this business to pay my liabilities. And the insecurity of the ongoing viability of my
business causes me so much stress that I am often unable to sleep and I no longer feel
relaxed even when I am not working it is always playing on my mind. Shocked how I could
have got it wrong, confusion trying to resolve it, embarrassment facing my clients and my
employees.”
Recent case

1. Employment contracts
2. Award identification and compliance
3. Performance management
4. Correct classification – FT, PT, casual
5. Termination entitlements
Avoiding the Common Pitfalls

• When starting a new business, clients are often overwhelmed by the tasks
required
• Imperative to get the employment framework correct from the start
• “Start” – starting a business, buying a business, new financial year,
employing a new employee
Getting it right from the start

• Buying a business can often lead to unintended liabilities and inherited
entitlements
• Wages costs often form the largest expense of the business – may lead to
assumption the vendor’s rates of pay are correct
• The website of Fair Work Ombudsman contains many useful tools:
 The small business helpline 13 13 94
 Small business page fairwork.gov.au/find-help-for/small-business
 Online learning centre
o fairwork.gov.au/how-we-will-help/online-learning-centre
Buying a business

• A couple purchased a café in Mornington in 2010
• Employed a part-time kitchen hand who worked at the café from October
2010 until February 2014
• For most of her employment, the employee was paid just $11.50 an hour
• New owners made two incorrect assumptions:
 The rates of pay paid by the Vendor remained correct;
 Because the employee has a disability, Malt Cow mistakenly assumed
that she was receiving a supported wage
• Employee was 18 when she started working at the café and was entitled to
pay increases on her 19th and 20th birthdays and minimum national wage
increases each July thereafter
• Following a complaint to the FWO, an investigation found that she had been
underpaid a total of $19,622 during her three-and-a-half years at the café.
Malt Cow Pty Ltd

• Malt Cow was also found to have breached the Award when it reduced the
employee’s rostered hours without documenting the change in writing
• Malt Cow agreed to sign an Enforceable Undertaking requiring it to:
 Back-pay all outstanding entitlements to the affected employee within
six months and apologise in writing for the conduct;
 Provide a report within a month on steps taken to ensure its compliance
with workplace laws;
 Post a workplace notice advising other employees of its contraventions,
giving a commitment that such behaviour will not occur again;
 Undertake training on employer obligations under federal workplace
laws, including managing employees with disabilities;
 Audit the company’s compliance with workplace laws each year for the
next three years; and
 Make a $1000 donation to Disability Advocacy Victoria.
Malt Cow Pty Ltd

1. Employment contract:
 Probationary period
 Policies and procedures;
 Fair Work Information Statement;
 Continuity clause;
 Annualised salary and off-set clauses; and
 Restraint of trade.
Employment Contract

2. Award identification and compliance:
 Base rates of pay, overtime, penalties and allowances;
 Pay cycles and rosters;
 Inform employee of correct classification;
 Redundancy and consultancy obligations; and
 Wage increases.
Award identification & compliance

3. Performance management:
 Position description and KPIs;
 Frequent discussions – positive and negative;
 The myth of 3 warnings.
Performance management

4. Correct classification – FT, PT, casual, independent contractors
 Beware the long-term casual
o Casual loadings in addition to leave entitlements
o Minimise risk with off-set clause in written contract
 Incorrectly treating employees as contractors can lead to:
o Prosecution for sham contracting
o Mistakenly believing business is a small business under the FW Act
o PAYG withholding penalty for not meeting their PAYG withholding obligations
o super guarantee charge (for not meeting their super obligations), made up of:
– super guarantee shortfall amounts (amount of super contributions that
should have been paid into a complying fund)
– interest
– an administration fee.
Correct classification

5. Termination entitlements:
 Notice – NES v Contract;
 Payment in lieu;
 Garden leave;
 Annual leave loading; and
 Restraint of trade.
Termination entitlements

The 5 Most Common Employment Pitfalls

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