Case Study: $4M Penalty for Wage Underpayment

Underpaid by Employer: Fairwork Case Study

More than $4 Million in fines were levelled against an Employer, HR Coordinator and general manager for underpayment of wages giving the Fair Work Ombudsman one of their biggest penalty wins.

The Federal Court of Australia delivered a judgment in the case of Fair Work Ombudsman v DTF World Square Pty Ltd (in liquidation) (No 4), focusing on underpayment of wages, particularly concerning the deliberate underpayment of wages and exploitation of employees by DTF World Square and its associated entities.

This case also demonstrates the potential trouble that some Employers may come across if wage reviews and wage audits are not undertaken to ensure correct payment of wages, and to avoid claims from underpaid employees. It also shows all Employers and HR what the wage theft laws might look like and who may be prosecuted in the instance where there are underpaid employees, which includes Directors, managers, payroll, consultants and HR. 

This also highlights the importance of having lawyers for employers on call to discuss potential underpayment of wages or underpaid claims and issues in a timely manner.

Key Points of the Judgment:

1. Background of the Case:
   • The case involved DTF World Square Pty Ltd and Selden Farlane Lachlan Investments Pty Ltd, two companies that operated Dumpling chain Din Tai Fung restaurants in Sydney and Melbourne. These companies were accused of contravening multiple provisions of the Fair Work Act 2009 through underpayment of wages and fraudulent record-keeping.
   • This included underpayment of wages – casual loading, weekend and public holiday penalty rates, minimum hourly rates and slit shift allowances.
   • The Fair Work Ombudsman alleged that the companies, along with certain senior employees (by way of accessorial liability), were involved in these contraventions.
2. Findings Against the Companies:
   • Both companies were found to have engaged in systematic underpayment of wages of employees and further created false employment records to conceal their wrongdoing.
   • The companies were in liquidation at the time of the judgment, which factored into the considerations for penalties.
   • The workers were also vulnerable workers many of whom were visa holders with student visas or company sponsored visas.
   • In imposing the penalties, Justice Katzmann found the conduct involving workers was “not isolated, ad hoc or inadvertent” with one worker underpaid for a period of four (4) years and the others underpaid over eight (8) months and multiple pay periods.

Justice Katzmann also said: “It is difficult to conceive of any circumstances in which the introduction and operation of a dishonest scheme to deprive employees of their statutory entitlements to minimum wages or conditions would ever warrant anything but the imposition of substantial penalties.”

3. Role of Senior Employees:
   • Two senior employees, identified as accessories to the contraventions, included the general manager and the HR coordinator. They were found to have been significantly involved in the violations, including the creation of false records and facilitation of underpayment of wages.
   • The HR coordinator argued that she had a clean record and that the hardship which included having to sell her house if fined should be taken into consideration. 
   • In deciding the penalties, the Court did not consider the clean record especially considering the seriousness of the contraventions which were deliberate and utilised to deceive.
4. Penalties Imposed:
   • DTF World Square was ordered to pay penalties totalling $1,997,100
   • Selden Farlane Lachlan Investments was fined $1,896,300.
   • The HR coordinator was fined $105,084.
   • The General Manager was fined $92,232.
   • Keep in mind the Court had already reduced the fines by 40%!
5. Judicial Comments:
   • Justice Katzmann criticised the deliberate nature of the contraventions, emphasising the seriousness of exploiting vulnerable workers, many of whom were migrants on temporary visas.
   • The judgment highlighted the need for substantial penalties to deter similar future conduct and noted the importance of these penalties reflecting the gravity of the offenses.
6. Overall Implications:
   • The case underscores the judiciary’s stance on enforcing workplace rights to be paid the correct salary under any award or industrial instrument.  The obligations to get this right lie squarely with the Employer and anyone involved in paying salaries including HR, management and consultants.  It also set out the severe consequences for businesses that engage in deliberate and systematic exploitation of workers.
   • The judgment also illustrates the role of senior management in such schemes and their accountability under the Fair Work Act, underpayment of wages and wage theft laws.
   • This case also raises the importance of wage reviews and wage audits under legal professional privilege to mitigate the risk of underpayment of wages especially considering that the Federal Wage Theft laws are just around the corner. Having lawyers for employers in your corner who can advise on mitigating risk and liability is essential.

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Written By   

Jonathan Mamaril   

Director  

NB Employment Law   

[email protected]   

+61 (07) 3876 5111