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

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.