Avoiding Employee Entitlements – What are the penalties?

June, 2015

By Clayton Payne

If an employer fails to provide an employee with employment based entitlements, such as annual leave or personal/carer’s leave, what type of penalties can they expect to be held liable for?

The Federal Court of Australia has recently examined the nature and extent of penalties that should be ordered for an employer’s failure to meet its obligations under the Fair Work Act 2009 (Cth) (‘Fair Work Act’) and its predecessor, the Workplace Relations Act 1996 (Cth).

In Director, Fair Work Building Industry Inspectorate v Foxville Projects Group Pty Ltd, the applicant claimed that the employer, which was engaged in internal fit outs and plastering in some major building developments, had failed to:

• credit annual and personal/carer’s leave to certain employees,
• confer certain entitlements to specified employees under an Enterprise Agreement;
• provide employees with Fair Work Information Statements; or
• keep employment records in accordance with the relevant regulations.

During the proceedings it was submitted that the employer had never intended to meet its relevant obligations and that it merely entered into Enterprise Agreements as an artifice, to “ … keep the CFMEU [Construction, Forestry, Mining and Energy Union] at bay and to enhance the prospects of successfully tendering for work”.

His Honour also noted that the employer had retained a labour hire company, in the court’s view, to distance itself from its workplace obligations.

In determining the appropriate penalty, his Honour considered a wide range of factors, including the nature and extent of the employer’s breaches, which he found were significant, but not at the ‘upper levels’ of ‘culpability’.” His Honour also found that the employer’s avoidance of its obligations was deliberate.

In mitigation, his Honour took into account the fact that the employer was cooperative during the proceedings and accepted its wrongdoing.

His Honour emphasised that the failure to provide Fair Work Information Statements to employees in the circumstances of this case, noting that a large proportion of the workforce hailed from overseas, was of “ … even greater importance where the work-force consists of many persons not fluent in English… A failure to be made aware of one’s rights places an almost insurmountable obstacle in the path of those who may need to exercise those rights”.

The employer was ordered to pay civil penalties amounting to $145,000, together with compensation equating to more than $150,000 covering 15 employees.

Conclusion

This decision emphasises that employers need to take care when entering into any conduct or arrangement with might fall foul of employment laws, particularly the Fair Work Act.

Businesses need to consider the true nature of any arrangements entered into. For example, businesses should ask: are the workers engaged truly independent contractors, or are they employees? If these workers are not truly employees, what level of control does the business have over them? Are the workers permitted to delegate their duties readily? Are they able to work for other businesses? Is the business using another entity to engage these workers, merely to avoid it being required to pay employment entitlements?

The consequences of not giving the appropriate consideration to these matters could lead to civil penalties being ordered for breaches of the Fair Work Act against companies of up to $51,000 and individuals (such as company directors, and even in some circumstances, the likes of human resources managers) of up to $10,200, per breach.

Contact Mills Oakley

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Ross Levin | Partner
Melbourne
T: +61 3 9605 0070
E: rlevin@millsoakley.com.au

Malcolm Davis | Partner
Sydney
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E: mdavis@millsoakley.com.au

Adam Lunn | Partner
Melbourne
T: +61 3 9605 0868
E: alunn@millsoakley.com.au

Lisa Anaf | Partner
Melbourne
T: +61 3 9605 0857
E: lanaf@millsoakley.com.au

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