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Employment and Migration Blog

A Lesson for Employers in Coles’ perpetual underpayment

Posted by Shawn Skyring , Laure Kenworthy on 8 Dec 2021

Underpayment of wages happens when an employee or worker is paid less than their minimum legal entitlement. The Fair Work Ombudsman (the Ombudsman) explains that it happens often because of a mistake or payroll error, which can lead to serious penalties if not rectified quickly and permanently. However, it can also happen intentionally (i.e. wage theft) as is often seen in amongst minority groups of workers. Although underpayment is particularly rife in industries, such as the building and construction industry, it does not discriminate, and is an ongoing, widespread concern across the Australian workforce.

Coles Supermarket provides a prime example of underpayment and its repercussions. The supermarket giant has had a media presence for its underpayment of staff since approximately 2015 when an employee commenced proceedings for underpayment against the supermarket in the Fair Work Commission (the Commission). As a result of those proceedings, the Commission ordered Coles to reapply for an enterprise agreement that would put its employees in a better position overall. This coincided with a finding that over 77,000 employees at Coles had been ‘significantly’ underpaid.

In February 2020, Coles self-reported its underpayment of approximately 600 staff to the amount of $20 million over the previous six years. A class action was filed in the Federal Court on behalf of over 5000 current and former Coles employees, with the representative firm estimating costs of up to $200 million to remedy the underpayment.

Now, in 2021, further court proceedings have been filed (the latest on 1 December 2021) by the Ombudsman against Coles relating to specific underpayments of 7812 employees between 2017 and 2020. The Ombudsman alleges that a group of department managers have been subjected to underpayment in excess of $100 million, with one manager owed $471,647.

Despite the current remediation claims, Coles budgeted in 2020 for $20 million to be paid in remediation costs, and they have paid $13 million already with a further $12 million expected to be paid.

In 2020, Australian Industry Group chief executive Innes Willox stated that he believed current civil penalties for underpayment were an effective deterrent. However, Coles’ continued involvement in proceedings commenced against them for underpayments 6 years after the first ‘significant’ claim suggests that the pecuniary penalties are not an effective deterrent. Notably, this seems particularly the case for big employers who are more likely able to afford to pay the fines without closing their doors. The same cannot be said for smaller employers.

In relation to present proceedings, Coles commented that it was currently in the process of reviewing the relevant material and considering issues relating to the interpretation and application of relevant award provisions. By this response, it is clear that it doesn’t matter how big your business is, or how many dedicated human resources employees you have, an applicable industrial instrument must be complied with to avoid repercussions such as Coles continues to face.

In this respect, Fair Work Ombudsman Sandra Parker has commented that “Businesses paying annual salaries cannot take a 'set-and-forget' approach to paying their workers”, as wages must sufficiently cover all minimum lawful entitlements for hours actually worked, not just hours contracted to be worked.

In addition to seeking a court order for Coles to remediate the claimed underpayments, the Ombudsman is seeking penalties for multiple alleged breaches of workplace laws. This should be expected by any employer who underpays their employees, whether intentionally or not.

Having your employment contracts or alternative agreements periodically reviewed by a professional is a great way to ensure that your remuneration structures and all other terms and conditions of employment are compliant with applicable laws, and effectively set out within the contract. Following the last two years of employment turbulence thanks to the unmentionable, this is a particularly important process to undertake now if you haven’t already done so, to set yourself up for whatever 2022 may bring.

If you would like your contracts of employment reviewed, or advice in relation to any of the above, please don’t 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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