If a company breaches the Fair Work Act by underpaying employees (or denying other entitlements) Directors and other executives of a business can be held personally liable for both compensation for unpaid entitlements and penalties under the Fair Work Act, if they are knowingly involved in the contravention.

There has been a focus recently in the media and by the Fair Work Ombudsman on the underpayment and exploitation of employees, particularly at franchise businesses such as service stations, supermarkets and convenience stores.

Fair Work Inspectors have the power to enter premises without permission (although they cannot use force) to conduct compliance audits, and can interview staff. These powers have been used in recent years to conduct unannounced visits on 7-11 franchisesacross Australia, leading to a series of cases in the last 12 months where Court ordered penalties have been imposed against the franchise owners and their directors.

In the most recent, Fair Work Ombudsman v JS Top Pty Ltd & Anor [2017] FCCA 1689, the Federal Circuit Court found that the franchise owner’s director “deliberately manipulated the data which he entered into the 7-Eleven payroll system” to obscure the underpayments made to its staff. The employees were paid a flat rate between $13 and $19 per hour, well below the award rate. However, the franchise owner would reduce the recorded hours worked by each employee in 7-Eleven’s payroll system to give the appearance of them receiving hourly rates of $25-$30. The Court noted that this practice had also been used by other 7-11 franchise owners.

Even though the franchise owner paid the outstanding employee wages in full, the business was ordered to pay a penalty of $140,000, and the director was personally ordered to pay a penalty of $28,000.Ironically, the total underpayment of staff in this case was only $19,397.15, so the director and the business have been ordered to pay amounts far in excess of the apparent financial benefit derived from underpaying.

These cases emphasise the importance to business owners of understanding what awards their employees are covered by, what their minimum entitlements are and ensuring there is compliance with the Fair Work Act, so as to avoid possible personal liability for any contraventions.

John Ferguson
Lawyer