Court Issues Stern Warning to Employers on Preventing Underpayments

 

The Federal Court of Australia (FCA) has imposed record penalties of $10.34 million against two related entities for multiple violations of the Fair Work Act 2009 (FW Act), resulting in significant underpayments.

The Fair Work Ombudsman (FWO) initiated legal action against the Commonwealth Bank of Australia (CBA) and its subsidiary, Commonwealth Securities Limited (CommSec), following their voluntary disclosure of underpaid entitlements to approximately 7,400 employees between October 2015 and January 2021.

In the case Fair Work Ombudsman v Commonwealth Bank of Australia [2024] FCA 81, the FCA determined penalties for the following admitted violations:

The Better Off Overall Test (BOOT)

The enterprise agreements required CBA and CommSec to conduct BOOT assessments to ensure employees were better off overall. This involved:

– Comparing entitlements under the enterprise agreement with those under the relevant modern award at the end of each “relevant period” and making top-up payments if necessary.

– Comparing individual agreements against the terms of the enterprise agreement.

CBA and CommSec failed to perform these assessments, leading to approximately $16 million in underpayments. Despite being aware since December 2015 that they were not complying with these obligations, both entities failed to implement the necessary compliance practices and processes.

This constituted “serious contraventions” under section 557A of the FW Act, characterized by knowing violations that formed part of a systematic pattern of conduct over ten years, affecting a large number of employees.

Individual Flexibility Arrangement (IFAs) Violations

CBA and CommSec also breached section 50 of the FW Act by entering into invalid individual agreements with certain employees, resulting in underpayments of approximately $5.2 million. These underpayments included various allowances, leave entitlements, redundancy pay, and overtime.

False or Misleading Representations

CBA violated section 345 of the FW Act by falsely assuring employees that they would be better off under individual agreements compared to the enterprise agreement, which was untrue.

The FCA noted that the contraventions were significant, prolonged, and preventable by these large, wealthy institutions. The court emphasized that the focus should be on the systems, processes, and checks that allowed such a situation to persist.

The FCA declared that the penalties must be substantial enough to deter not only CBA and CommSec but also other potential violators. It stressed the need for general deterrence to ensure compliance, highlighting the importance of adequate systems to prevent and correct errors.

The court ordered penalties of $7.3 million for CBA and $3.03 million for CommSec, totaling $10.34 million, to be paid within 60 days. A small reduction was applied for self-reporting, cooperation with the FWO, and admission of liability.

Lessons for Employers

The significant penalties in this case are meant to discourage other organizations from maintaining non-compliant systems under the FW Act or relevant modern awards or enterprise agreements. Employers must ensure they have robust systems to detect and correct errors, including regular HR practices and payroll checks. Workplace Law can assist with spot-checking programs—please contact us for more information.

*Note: The information 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 this content or links to external websites. Where applicable, liability is limited by a scheme approved under Professional Standards Legislation.*

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