Malaysian restaurant chain fined $300,000 for underpaying staff – some paid as little as $11 per hour

Malaysian restaurant chain fined $300,000 for underpaying staff – some paid as little as $11 per hour

Employers have a legal obligation to ensure that employees are paid according to the relevant award.

A recent case before the Federal Circuit Court highlights the importance of employers understanding their legal obligations when determining an employee’s remuneration and benefits.

The Federal Circuit Court of Australia found the three operators of a Sydney-based Malaysian restaurant chain deliberately underpaid six employees by more than $87,000 between February 2012 and April 2015.

The Court fined the restaurant and its three operators and also ordered them to pay for an independent audit of their HR practices.

The underpayments came to light after three employees made complaints to the Fair Work Ombudsman (FWO). These complaints were later investigated by the FWO who found that some employees were paid as little as $11 per hour.

The FWO then initiated legal action on behalf of the employees who were predominately visa holders from non-English speaking backgrounds.

The restaurant told a Fair Work Inspector that they did some research before opening their first restaurant to see what other restaurants were paying and found three approaches:
• star-rated restaurants that paid according to the award;
• medium restaurants that followed the award half the time; and
• a third group that included small restaurants that paid illegal rates.

The restaurant’s pay scale was based on the third approach.

The judge criticised the employer for taking the third approach, arguing that the fact that there are many non-compliant restaurants in the industry “does not exculpate the [operators] in any way” but rather “it does the opposite” in that the operators knew about the award but chose to ignore it.

The Judge fined the employer $184,960 as well as fining the individual restaurant operators. Two of the operators were fined $35,360 and the third $36,990. The failure to keep adequate records and provide accurate payslips and the provision of false records to the Fair Work Ombudsman contributed to the severity of the fines.

The judge rejected the employer’s defence that the employees agreed with the terms of their employment.

The Judge also ordered the employer to engage and pay a third party with qualifications in accounting or workplace relations to audit the compliance of all its sites with respect to the Fair Work Act and the restaurant award from March 1st to December 31st 2016. The judge noted that this would be at the employer’s expense.

This issue may have been resolved internally had the employer sought the services of HR specialist and undertaken a periodic HR Compliance Audit. A HR Compliance Audit would have reviewed employee benefits and compensation and identified that employees were not being paid in accordance with the relevant award. An action plan could have been put in place to remedy the situation. This could have avoided a costly, time-consuming and embarrassing legal dispute.

The devastating impact of such a dispute can be seen in evidence provided to the Court by the employer that a media release by the Fair Work Ombudsman resulted in an immediate downturn in trade of approximately 20 per cent in the following month.

Disputes such as this also impact employer of choice status and negatively impact the workplace culture.

iHR believes that prevention is the best cure and undertaking a HR Compliance Audit is an important risk management tool as it provides an independent, objective and systematic review of an organisation’s HR function. Benefits of a HR Compliance Audit include:
• Identify procedural or compliance issues and control risk
• Define priorities for future activities
• Build business plans and strategy
• Obtain information to build a business case to better resource the HR function
• Identify opportunities for improvement
• Gain a deeper understanding of the benefits of a mature HR function

Contact iHR today to find out more about how a HR Compliance Audit can help your business avoid costly and time-consuming legal disputes.