Australia: Bakery franchise ordered to pay $249,000 to a temporary visa worker for underpayment and “cashback payment” arrangement

Bakery franchise ordered to pay $249,000 to a temporary visa worker for underpayment and “cashback payment” arrangement

The Federal Court of Australia has ordered that an employer and its two managing directors pay a former employee who had been working on a temporary visa a total of $249,000 in compensation and pecuniary penalties, for contraventions of the Fair Work Act 2009 (Cth) (“Fair Work Act”).

Under the Fair Work Act:

• an employer is required to pay an employee’s wages in full (section 323(1));
• an employer may not require an employee to make a payment to them if the requirement is unreasonable and it is for the benefit of the employer (section 325(1)); and
• a person involved in a contravention of the Fair Work Act may be personally liable if they have been “in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention” (section 550(2)(c)).

In Ahmed v Al-Hussain Pty Ltd t/as The Cheesecake Shop (No 2) [2019] FCA 670 (“Liability Decision”), the Federal Court held that a bakery franchise contravened section 325(1) of the Fair Work Act by unreasonably requiring the former employee to pay substantial amounts of cash out of his wages over a two-year period, under threat of losing his employment and the employer’s continuing sponsorship of his application for a temporary class 457 visa (“Cashback Arrangement”).

The Court found that the requirement on the employee to make Cashback Arrangement was unreasonable and unjustified because it was for no proper reason, and for the benefit of the directors of the employer. The employer had exploited the applicant by threatening to terminate his employment and inform the Department of Immigration, to jeopardise the continuation of the applicant’s visa.

Additionally, the Court held that the employer had contravened section 323(1) of the Fair Work Act on multiple occasions by not paying the applicant his wages and superannuation in accordance with his contractual entitlements.

The two directors of the employer were also found to be “knowingly concerned” in the bakery franchise’s contraventions of sections 323(1) and 325(1) of the Fair Work Act, within the meaning of section 550 of the Fair Work Act.

In doing so, the Court observed that the directors induced the contraventions of section 325(1) of the Fair Work Act by the continuous threats they made towards the applicant’s employment and visa sponsorship to enforce the cashback payments.

In Ahmed v Al-Hussain Pty Ltd t/as The Cheesecake Shop (No 3) [2019] FCA 848 (“Penalty Decision”), the Court calculated compensation owed to the employee as at $123,000, inclusive of the underpayments, the cashback payments, unpaid superannuation and interest.

In respect of the pecuniary penalties sought by the employee, the Court held that all the contraventions were deliberate and exploited the applicant’s vulnerability by reason of his immigration status as part of a systematic pattern of conduct, by making demands and threats regarding the applicant’s visa sponsorship. Therefore, the contraventions were found to be at the higher end of the range of seriousness. In passing, the Court  also remarked that, although the conduct fulfilled the elements of a “serious contravention” under section 557A of the Fair Work Act, it could make no finding that they attract the significantly larger penalties prescribed under section 557A of the Fair Work Act penalty as it had not been pleaded by the applicant.

The Federal Court emphasised that the penalties required “the strongest denunciation” and to penalise the employer and its directors for their “disgraceful mistreatment” of the temporary visa worker. Due to the seriousness of the “ruthless” and “exploitative” conduct and for the purposes of specific and general deterrence, the Court ordered that the applicant be paid $126,000 in penalties, comprising $100,000 to be paid by the bakery franchise, and $26,000 to be paid by its directors.