Cheap but not cheerful for underpaid workers: Fair Work puts bite on pay cheats

If you thought the price of a feed at the humble suburban food court has climbed to gourmet levels, it could be because the Fair Work ombudsman has been hanging out beside the wok station or behind the bain-marie.

In a speech detailing Australia’s biggest pay cheats — admitted and alleged — acting Fair Work ombudsman Kristen Hannah has revealed the national wage inspector has launched an undercover crackdown on the cheap eats sector — especially cut-price sushi bars — for underpaying workers.

Speaking at the Ai Group’s annual PIR conference in Canberra, Hannah said she was “targeting and designing investigations for problematic industries” and “running a rolling program of unannounced audits in the FRAC [fast food, restaurants and cafes] sector … specifically targeting areas with ‘cheap eats’ havens”.

“These are areas where meal costs are low and have not risen in line with other precincts or minimum wages,” Hannah said. “Our highest penalty on record of $891,000 against the operators of three Hero Sushi takeaway outlets was the result of underpayments uncovered by Fair Work inspectors when undertaking a proactive activity targeting sushi businesses.

“We’ve visited every capital city and multiple regional centres, most recently in Newcastle, Perth and Melbourne, and we will be undertaking more. The element of surprise, coupled with good intelligence about where the problems are, make these very effective activities.”

Offenders on the FRAC circuit often include franchises where licensees have to cover fees to owners and landlords amid soaring input costs coupled with subdued footfall.

The Asian-themed coffee and baked goodies brand 85 Degrees Daily Café — which has a brand vision of providing “luxurious treats with affordable price” — appears to be a regular customer of the Fair Work caffeine unit.

The head franchisor is being taken to court again by the ombudsman, which is alleging the main business “is liable for contraventions by eight franchisees in Sydney”.

“Nine staff were allegedly underpaid over $32,000 and 20 staff — including the nine allegedly underpaid — were affected by alleged record-keeping and pay slip contraventions,” Hannah said. “The staff included young workers and visa holders.

“We allege 85 Degrees should reasonably have known its franchisees would underpay the workers and breach other requirements because it had been on notice about compliance issues for many years through an enforceable undertaking with us and subsequent proactive FWO audits we conducted.

“Our court action against 85 Degrees is not the first time we’ve taken the company to court. Last November, we secured over $475,000 in penalties against 85 Degrees for underpaying eight workers who the company directly employed.

“The employees were Taiwanese students aged between 20 and 22 employed under the guise of a purported internship. Each of the students was underpaid by over $50,000. This was our second largest court penalty against a single company.”

White-bread, middle Australia is also getting a serve. Hannah revealed that the Fair Work team hit the Australian franchisor of Bakers Delight in July, “alleging it is legally liable for extensive underpayments at three Hobart stores formerly operated by one of its franchisees”.

“We are alleging 142 staff were underpaid $1.25 million between July 2017 and October 2020. Over half of the staff were young workers, and several were visa holders,” Hannah said.

“We allege that as the head franchisor, Bakers Delight Holdings, is liable for just over $642,000 in underpayments that occurred after February 2019 because it became aware the franchisee operating the stores had been underpaying staff but failed to take preventative action.”

Dobbing in bad bosses is also on the rise, Hannah said, with 14,000 anonymous online reports lodged last year. The ombudsman’s site reveals it has materials translated and ready to go in 30 languages.

But the biggest wage thieves are not small migrant businesses struggling to make a crust by still selling lunch for under $10. Of the $509 million clawed back in 2022-23, $317 million came from big businesses and universities, Hannah said. These included David Jones, Politix, Crown Melbourne and Perth, Suncorp, RSL Life Care Limited, Uniting AgeWell and Apollo Health.

“We also commenced litigation against Super Retail Group and its subsidiaries Super Cheap Auto, Rebel Sport, SRG Leisure Retail (BCF and Ray’s Outdoors), and Macpac Retail,” Hannah said.

Enforceable undertakings were also extracted from the University of Technology Sydney, the University of Newcastle and Charles Sturt University.

Part of the issue for big employers is unwieldy and difficult-to-modify payroll software that usually brings employers unstuck fairly soon after an upgrade when old payroll rules are audited, mapped and recoded into new software. That scenario cost Woolworths $300 million in remediations. In 2019, Bunnings put its hands up to underpaying 40,000 staff because of a payroll error that cost employees $6.1 million.

Sweating legacy payroll systems is definitely part of the problem, but Hannah told the room of senior HR managers there were other challenges in the tertiary sector needing attention.

“There are issues not just in payroll investment, but with poor governance and oversight, a lack of centralised human resources operating across faculties, and control over human resources and pay being dealt with by academic managers.”

This piece was first published by The Mandarin.