Even as businesses focus on the effects of the pandemic, they forget their other obligations at their peril.

As recently as two months ago, the business issue on everyone’s tongue was underpayment. Back then, it felt as though every other week a large, well-resourced business would be found to have systematically underpaid staff. 

The issue was so widespread that, even as late as mid-February, some referred to it as an ‘epidemic’. A choice of words they now surely regret. As the saying goes, some things change in the blink of an eye.

Even though the business impacts of COVID-19 are rightly the focus of every organisation, that doesn’t mean they can afford to forget about the scandal that began the year.

Egregious behaviour, high penalties

A February Federal Circuit Court decision to fine a Melbourne-based astro-turf business and its sole director a total of $240,000 for underpayment, with the fine being paid to the underpaid employee, raises interesting questions. Does such a fine set a precedent? Will we see a spike of underpayment claims being lodged by employees?

This penalty is likely to be considered an extreme case, but there is no doubt the penalty is part of an emerging trend to hold businesses and directors to account for underpaying workers, especially young and vulnerable workers. 

COVID-19 is unlikely to change much on this issue. Underpayments have continued to be enforced during the early stages of the coronavirus pandemic and, though it will disrupt and delay court decisions, it is unlikely the trend toward higher penalties will reverse.

In a media release on 26 March 2020, the Fair Work Ombudsman stated, “We will continue to utilise our full suite of enforcement tools to hold employers to account and any workers with concerns should contact us.”

The Federal Circuit Court decision saw the company, Rhino Grass, fined $200,000 and it sole director fined $40,000, with both fines payable to the underpaid worker along with back pay. 

The nature and size of the fine was unusual, particularly given that the underpayment amount totalled $8,088. But the fine was inflated due to the employer’s particularly egregious behaviour and failure to appear at court or otherwise take any steps to defend the claim.

While it’s unlikely we will see a rash of similar cases, there is a move in general to penalise business for underpayments. It’s perhaps more instructive to see how a big corporate, which self-reported its underpayment problems to the Fair Work Ombudsman, has been dealt with. Let’s look at Qantas.

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Enforceable undertakings

In addition to providing hundreds of underpaid workers with back pay plus interest six per cent above the RBA cash rate, Qantas will be bound by a court Enforceable Undertaking (EU). Pursuant to the EU, the airline must also make a $1,000 additional payment to affected employees, as well as a contrition payment to the Commonwealth’s Consolidated Revenue Fund of $390,500. 

Any further underpayments found through a process set out in the EU will attract, among other things, higher interest payments and the requirement for a further contrition payment to be made. These measures will cost Qantas millions of dollars at a time when global aviation services are being severely disrupted due to coronavirus. 

Regulatory oversight

The Fair Work Ombudsman (FWO), Sandra Parker, has prioritised going after businesses which are underpaying workers. She has said she will use her recently increased powers and intends to publicly name employers who break the law as a deterrence to other would-be lawbreakers.

The FWO recently concluded a nationwide audit of 1217 businesses in hospitality, domestic construction, retail, manufacturing, and administration services. Nearly half of businesses failed in their workplace basics, with underpayment an issue in 70 per cent of these non-compliant businesses. 

In a press release, Parker is quoted as saying: “Nearly three quarters of employers that breached the law said they weren’t aware of the rules, which is not an excuse. Businesses are failing the basic requirements of being a responsible employer if they are not carrying out adequate due diligence before hiring.”

The Fair Work Ombudsman has the power to compel records from an employer if an employee has lodged an underpayment complaint. If the records are found deficient the Ombudsman can issue a penalty infringement notice, and an inspector may issue a compliance notice if there is ‘reasonable belief’ an underpayment has occurred.

Aside from an increased willingness to pursue penalties, the Fair Work Ombudsman now holds a ‘higher bar’ for larger, high-profile businesses which self-report. The Ombudsman says an Enforceable Undertaking will be required as a minimum in these circumstances, and the employers will need to meet the cost of having their underpayments verified by experts.

Better safe than sorry

While COVID-19 has drawn the attention from underpayment at the moment, it will likely return to the spotlight. Maybe not soon, but it will happen.

As recently as February, the Attorney-General, Christian Porter, was considering new penalties via legislation to deal with wage theft. Changes which have been mooted include introducing criminal penalties for staff underpayments, significantly higher financial penalties, and increasing the Fair Work Ombudsman’s powers. 

The Attorney-General’s office has also suggested employers who underpay workers could be ‘named and shamed’, via ‘adverse publicity orders’ which require the offending employer to display a notice admitting to underpaying workers. Hence the potential for reputational damage would increase.

With a regulator more likely to issue penalty notices and showing a willingness to penalise employers in multiple ways, via penalties, back-pay with interest, the potential for special payments to affected employees, and other costs which come with underpayment, it’s vital employers have their house in order. 

When the economy was doing well, it was considered a scandal to underpay staff. It’s hard to believe that it will be less of a scandal if the worst predictions about the economic impacts of COVID-19 come true.

Alison Baker is a partner in the employment practice at Hall & Wilcox