4 million reasons why underpaying staff is a recipe for disaster

The Fair Work Ombudsman (FWO) has announced it has secured a $4 million fine against the popular Taiwanese dumpling restaurant, Din Tai Fung, for intentionally underpaying staff and falsifying records. This prosecution resulted in the second-highest penalties ever awarded by the regulatory body, sending a firm message to all business owners that the truth will come out no matter how intricate the cover-up is.

In this article, our experts explain the crux of the case, what went wrong, and share how water-tight compliance is the best way to avoid the risk of an underpayment claim.

The details of the case: what did the Federal Court find?

The Court found that the two companies didn’t just breach the Fair Work Act (FW Act) multiple times, they did it knowingly and systemically. The offences included the deliberate underpayment of 17 employees of $157,025 under the Restaurant Industry Award 2010, along with providing false records to Fair Work Inspectors. The affected employees, mainly visa holders from Indonesia and China, were predominately engaged in casual roles.

The Court also found that five contraventions met the definition of serious contraventions under laws designed to protect vulnerable workers due to deliberate and systematic conduct. This fact paired with the seriousness of the contraventions committed resulted in the Court applying a tenfold increase in applicable maximum penalties.

The penalties imposed include:

• $1.99 million against DTF World Square Pty Ltd (Din Tai Fung World Square);
• $1.89 million against Selden Farlane Lachlan Investments Pty Ltd;
• $92,232 against former General Manager, Ms Hannah Handoko; and
• $105,084 against former HR Coordinator, Ms Sinthiana Parmenas.

How did it all unravel?

It all began with an employee’s request for assistance. A simple ask for help allowed the FWO to commence an investigation that revealed the underpayment of 17 employees between November 2017 and June 2018 ranging from $2,165 to $50,588 with the most relating to unpaid overtime.

In addition to uncovering these significant underpayments, the FWO found that hourly rates paid to casual employees and fortnightly salaries paid to full-time employees didn’t meet various award requirements and employees were often required to work unreasonable additional hours. When asked for records, Fair Work Inspectors were presented with two versions, one fake and one accurate, with the fake records severely understating the hours worked by casual employees including false rates of pay.

In her decision, Justice Katzmann found that Handoko and Parmenas were involved in numerous contraventions, including Handoko specifically asking or requiring some employees to work unreasonable overtime and maintaining false records. Further to these findings, both companies were ordered to back-pay the underpaid employees, including interest and superannuation.

The lesson this decision holds for employers

• Compliance with Australian workplace laws is non-negotiable.
• Serious consequences can emerge from non-compliance.
• Vulnerable employees are still protected under the law.
• Maintaining accurate record-keeping and payslip obligations is essential.
• Conduct regular reviews and audits to ensure you are staying compliant.

But what about the new laws criminalising wage theft?

Intentional wage and superannuation theft (wage theft) is now a federal criminal offence and will be law from 1 January 2025, and these provisions will be incorporated into the Commonwealth Criminal Code (CC Code). Wage theft by an employer is committed in the circumstances where they intentionally engage in conduct that fails to pay an employee their minimum statutory entitlements arising from the FW Act or an industrial instrument such as modern awards or enterprise agreements. Employers, including individual directors, face penalties of up to 10 years’ imprisonment and fines of up to $7.8 million for deliberately withholding employee wage entitlements.

The legislation requires proof of intent beyond a reasonable doubt, excluding honest mistakes. The FWO will enforce the new laws, investigating potential criminal offences and referring cases to the Commonwealth Director of Public Prosecution (CDPP) or Australian Federal Police (AFP) for prosecution.

What are the common mistakes made by employers that can lead to ‘wage theft’?

• Ignorance of specific changes to awards – such as transitional rates, minimum wage increases, and changes to penalty rates.
• Failing to properly implement changes to payroll rules when a new award term or enterprise agreement has come into operation.
• A lack of consideration as to whether a pattern of work is that of a shift worker or a day worker with regular overtime.
• Confusion as to which award or enterprise agreement applies.
• Employment contracts that are non-compliant with the award or enterprise agreement. For example, are penalties and overtime absorbed by a higher rate of pay, or are they separately payable?
• Rostering beyond the award or enterprise agreement span of hours to meet client needs, without properly satisfying award or enterprise agreement facilitative provisions.

As you can see, intentionally underpaying your employees doesn’t just cost your business financially, it can severely damage your reputation, and soon under new laws, individuals can face jail time and huge penalties. While most business owners wouldn’t dream of intentionally committing wage theft, mistakes can and do happen – this is where we can help you. Citation HR can complete a thorough HR compliance audit of your business – and the best part –  this service is included in our monthly, cost-effective subscription which is designed to protect your business from costly risks. If you’d like to explore how Citation HR can protect your business , contact our team here.

About our author

Kurt Calma is a Workplace Relations Adviser at Citation HR. He regularly provides advice on workplace matters via the 24/7 HR advice line to find solutions for clients.