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Employment and Migration Blog

Hero Sushi slammed for exploiting and underpaying vulnerable workers

Posted by Shanni Zoeller on 17 Jul 2020

Assisted by Kristina Tato

The Federal Court of Australia has provided a timely reminder to businesses about exploiting vulnerable workers and the severe penalties attached to producing false records to the Fair Work Ombudsman (FWO) in an attempt to conceal underpayments.

In the case of Fair Work Ombudsman v HSCC Pty Ltd [2020] the Court imposed one of the largest penalties on three Franchise operators of Hero Sushi and key individuals in their management team.

Fair Work Inspectors (FWIs) discovered underpayments at Hero Sushi outlets in Newcastle, the Gold Coast, and Canberra when the Regulator was targeting sushi businesses. The audits revealed that 94 employees across the three Hero Sushi franchise stores were underpaid:

  • minimum hourly rates;
  • casual loadings;
  • penalty rates;
  • overtime rates;
  • clothing allowances; and,
  • annual leave,

under the Fast Food Industry Award 2010. The stores also failed to provide employees with payslips and make employer superannuation contributions.

Over a 15-month period between April 2015 and July 2016, the total quantum of underpayments was over $700,000.

During the FWO investigation into the three Hero Sushi stores, payroll officers had engineered and provided the FWIs false and misleading financial documents in an attempt to cover up the underpayments.

Many of the employees working at the sushi stores were international students or on working holiday visas.

The Court was scathing about the conduct key personnel who were operating the franchise stores were engaged in and stated:

“This case is about greed and the exploitation of the vulnerable. Those in a position to ruthlessly take advantage of others pursued their goal of seeking to achieve greater profits at the expense of employees. In doing so, a great number of false documents were deliberately and repeatedly created with a view to concealing the fraud being perpetrated.  Lies were told to cover up the wrongdoing. It was only when the “game was up” that those responsible admitted their misdeeds.”

The Court found that the franchise operators did not provide employees with payslips and deliberately hid this from employees. By not providing payslips, employees were unable to check whether they were being paid the correct rates in line with the award. Many employees were being paid flat hourly rates of $12.00 to $15.00 an hour and were paid this for working hours in excess of 50 hours per week.

The false records provided to the FWO was a further strategy to conceal the hourly rates used as to avoid scrutiny from the FWO. In relation to the falsified documents, the number of documents provided to the FWO demonstrated the considerable effort and time those in charge took to create them and therefore adding to the severity of the conduct. Hundreds of pages containing false information about pay rates and work hours were provided. Further, one of the directors in a meeting with the FWO assured the inspector that the business was being compliant when in fact they were not. The business admitted that the hourly rates used to pay its employees were to ensure that the wages were kept between 20 to 25% of its sales. One of the company directors revealed that the $12 an hour pay rate was offered so that they were more competitive.

The directors, accounts manager and payroll officers were said to have each aided and abetted or were knowingly concerned in some of the breaches especially in relation to the false records they had engineered for the purpose of hiding the underpayments and misleading the FWO in its investigation.

The Court imposed the following penalties:

  • Companies - a total penalty of $600,000;
  • Two directors - $85,000 each;
  • Accounts manager - $75,000; and,
  • Two payroll officers  were fined a total of $46,000.

In addition, the three sushi stores were ordered to display a notice at their respective premises containing the court case details and are required to conduct a six-month audit and provide findings to the FWO.

Key Takeaways

The case demonstrates that underpaying staff is “not just a cost of doing business”, especially in the fast food industry which employs a large number of migrant and student workers. The Regulator is not afraid to take action against a business who exploits vulnerable workers, nor will the Courts shy away from imposing significant penalties on business (and key decision makers) who deliberately and consciously underpay their staff because they are unaware of their workplace rights and minimum terms and conditions of employment.

Businesses must ensure they pay staff correctly, and apply penalties, allowances, loadings etc in accordance with the provisions of the applicable Award or Enterprise Agreement. Ignorance will not be a defence. What is also apparent from this case, and many others before it, is that the fabrication of payslips or the provision of misleading and deceptive documents, information and employment records to the Regulator during an audit will not be tolerated. Consequently, this will be an aggravating factor when the quantum of penalty is to be determined.

As the end of the 2019/2020 financial year draws to a close and a new year begins, it is a great time to review all of your employees’ wages to ensure that you are paying the correct rates.

In the 2020/2021 financial year, the FWC has decided to increase the national minimum wage by 1.75% which results in the minimum weekly wage for a permanent employee being $753.80 ($19.84 per hour).

For Award covered employees, the FWC has applied the same percentage increase (1.75%) to minimum award rates however, the increase will have different operative dates for different groups of modern awards:

Group 1 Awards                                                1 July 2020

Group 2 Awards                                                1 November 2020

Group 3 Awards                                                1 February 2021

The FWC has decided to have a staggered approach due to the impacts the COVID-19 pandemic has had on different industries and sectors; the least effected are Group 1 (health care, social assistance workers, teachers and childcare and others engaged in essential services) and Group 3 (accommodation and food, arts and recreation, aviation, retail and tourism) are the most adversely effected.

If you ever discover an underpayment you must take immediate action to rectify it. Critical information to determine whether an underpayment has arisen, will be your time and wage records. In addition to these obligations, employers must be sure that they keep themselves up to date on any changes to hourly rates and Award changes (there has been a few over the past couple of months).

If you require assistance, please do not hesitate to contact a member of Coleman Greig’s Employment Law Team, who would be more than happy to assist you today.

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