14 March 2012 Cash-flow problems no excuse for underpayment of workers, magistrate rules

By Warwick Ryan, Partner and Nathan Huynh, Law Clerk

In these difficult economic times it is common for small businesses to experience liquidity and cash-flow problems. Under these situations it is natural for a small business to concentrate on paying those people that keep the business afloat. However, it is important that a business does not disregard its obligations as an employer.

It must be emphasised that Fair Work Australia considers that financial difficulties and/or a lack of knowledge regarding the relevant industrial laws and rates of pay do not justify a failure to provide adequate pay for your employees.

The case of FWO v Promoting U Pty Ltd & Anor [2012] FMCA 58 is a good example of the consequences which can result from underpaying employees. Promoting U and its director, Sebastian Boi ('the respondents') were found to have committed 16 breaches of workplace relations laws including underpayments and record keeping breaches.

Four employees working as graphic designers for the respondents were underpaid wages and three of the employees were additionally not paid their accrued annual leave entitlements upon leaving the business.

The contraventions made by the respondents were a direct result of a combination of a lack of knowledge of their true obligations in some instances and in each and every instance caused by a lack of operating funds.

It was also found that the respondents became aware that their conduct was inadequate and failed to make restitutionary payments for a long period of time despite promising to do so. According to Federal Magistrate Burchardt, these breaches were deliberate, persistent and repeated, and that it was important to publicly denounce repeated contravening conduct.

In addition to repaying almost $11,000 in owed wages, the Federal Magistrates Court fined Promoting U Pty Ltd $65,000 and its director an additional $13,000. Federal Magistrate Burchardt attributed the penalty to the importance in publicly denouncing repeated contravening conduct such as that of the respondents.

It should also be noted that in the last financial year, the Fair Work Ombudsman recovered a total of $8.215 million for 4182 underpaid workers in NSW, and $26.7 million for 17,360 employees nationally.

What does this mean for employers? This highlights the fact that it is a risky move for an employer to avoid or evade their obligations under Workplace Relations law simply because they are struggling. Any attempts to evade the proper payment of wages are likely to result in an action by the Fair work Ombudsman. Such action is likely to result not only in the restitutionary payment of wages, but also significant penalties as punishment for the contraventions; further exacerbating the businesses liquidity issues.

It is our view that it is neither a sound commercial or legal option for employers avoiding  honouring their obligations to employees pursuant to the Fair Work Act, including the payment of correct wages.

However neither is it wise to fail to understand what these obligations are – lest an employer find they are paying more than is required to their staff. It is strongly recommended that correct advice is sought to ensure that your payroll is correct, but are also structured to work in favour of your business.

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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