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Court sends clear message to employers on having adequate systems, processes and checks in place to avoid underpayments

The Federal Court of Australia has handed down a record $10.34 million in penalties against two related entities for various contraventions of the Fair Work Act 2009 (Cth) resulting in substantial underpayments.

The Federal Court of Australia (FCA) has handed down a record $10.34 million in penalties against two related entities for various contraventions of the Fair Work Act 2009 (Cth) (FW Act) resulting in substantial underpayments.

The Fair Work Ombudsman (FWO) commenced proceedings against Commonwealth Bank of Australia (CBA) and its subsidiary, Commonwealth Securities Limited (CommSec) after both entities voluntarily disclosed to the FWO the underpayment of entitlements to approximately 7,400 employees between October 2015 and January 2021.

In Fair Work Ombudsman v Commonwealth Bank of Australia [2024] FCA 81, the FCA was required to determine the issue of penalties for the following admitted contraventions:

(1) The better off overall test (BOOT)

The relevant enterprise agreements contained terms which required CBA and CommSec to conduct BOOT assessments to ensure employees were better off overall in the payment of entitlements under:

  • the enterprise agreement against the relevant modern award by conducting reconciliations at the end of each “relevant period” and to make a top-up payment if there was a shortfall; and
  • individual agreements against the terms of the relevant enterprise agreement.

Both CBA and CommSec contravened section 50 of the FW Act by failing to undertake the above BOOT assessments, resulting in underpayments of approximately $16 million.

CBA and CommSec further admitted to not taking steps to implement practices and processes to ensure compliance, particularly given senior staff at both entities had been put on notice in December 2015 that they were not complying with these obligations.

This made the contraventions fall within the category of “serious contraventions” under section 557A of the FW Act (which increases the penalties tenfold), being “knowing” contraventions forming part of a “systematic pattern of conduct” over 10 years and affecting a substantial number of employees.

(2) Individual flexibility arrangement (IFAs) contraventions

Both CBA and CommSec contravened section 50 of the FW Act by entering into individual agreements with certain employees which were not valid IFAs for the purposes of the FW Act.

This resulted in a failure to pay employees their full entitlements under the applicable enterprise agreement, resulting in underpayments of approximately $5.2 million.

The underpaid entitlements included certain allowances, annual leave, long service leave, parental leave, personal/carer’s leave, redundancy pay, payment in lieu of notice, ordinary hours, overtime and loadings.

(3) False or misleading representations

CBA contravened section 345 of the FW Act by misrepresenting to employees that they would be better off overall under individual agreements than under the applicable enterprise agreement and that the remuneration paid under the individual agreement would satisfy the enterprise agreement entitlements, when neither was true.

The FCA considered the contraventions to be substantial, prolonged and taken by institutions who are large, wealthy and capable of preventing such breaches from occurring.

The FCA found that the obligations on CBA and CommSec were readily able to be complied with, and proper checks to ensure compliance were not hard to implement. The FCA refused to consider the errors and misunderstandings which led to the contraventions, stating that the focus should be on the systems, processes and checks that allowed such a situation to arise and continue on an ongoing basis.

The FCA stated that “the message needs to be loud and clear that this is not good enough and will not be tolerated” and any penalty imposed must be significant enough to deter not only CBA and CommSec, but also potential contraveners in like positions.

Accordingly, the FCA considered general deterrence to ensure compliance to be important in the circumstances, expanding further at [71]:

“What needs to be deterred is a system being left in place that allows for basic errors to be made without an adequate system of checking or detection and thereby correction, and as a result erroneous assumptions made and untenable beliefs held with serious consequences for a large number, if not proportion, of employees”.

The FCA stated that while no penalty within the available range is likely to materially hurt CBA or CommSec given their size and resources, it will likely encourage other institutions who are made aware of the contraventions to pay close attention to compliance and the adequacy of systems for checking in place.

In considering the above, the FCA ordered penalties in the amount of $7.3 million for CBA and $3.03 million for CommSec (totalling $10.34 million), each to be paid within 60 days of the decision. A small discount was applied to the penalties for self-reporting, cooperation with the FWO and admission of liability.

Lessons for employers

The penalties imposed in this decision are significant and are intended to deter other organisations from implementing systems which allow for non-compliance with obligations under the FW Act or where relevant, a modern award or enterprise agreement.

Employers must check that they have adequate systems and processes in place for ensuring compliance and detecting any errors which require correcting action. This could include regular HR practice (such as IFA issuance and BOOT) and payroll spot checking. Workplace Law can support you with a spot checking program – please contact us if you would like to discuss further.

Information provided in this news alert is not legal advice and should not be relied upon as such. Workplace Law does not accept liability for any loss or damage arising from reliance on the content of this blog, or from links on this website to any external website. Where applicable, liability is limited by a scheme approved under Professional Standards Legislation.

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