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Director, Murray Thornhill, and Senior Associate, Gemma Wheeler-Carver, in our Dispute Resolution and  Employment teams outline the penalties for underpaying employees.

A recent decision of the Federal Circuit and Family Court of Australia is a timely reminder that the Fair Work Ombudsman will issue Compliance Notices even for relatively smaller underpayments, in this case, $1,019.34. The penalties for failure to comply with a Compliance Notice can be substantial and ordered against both the company itself and individuals involved in the non-compliance. In this case, the Court ordered a penalty of $16,650 against the company and $3,330 against the director, neither of whom participated in the proceedings before the Court.

A Compliance Notice is a notice issued by the Fair Work Ombudsman in which they assert a breach of an employer obligation, such as payment of annual leave, notice entitlements, salary or other obligations under the Fair Work Act. Failure to comply with the Compliance Notice within the time required is itself a breach of the Act and will commonly be prosecuted by the Ombudsman. This action can be undertaken separately from any individual claim made by an employee for their unpaid entitlements and does not prevent an individual employee from making such a claim at a later date.

This case highlights the importance of seeking early advice in these type of matters. Where the Compliance Notice is complied with, which in this case required an assessment of outstanding entitlements and payment in the amount of $1,109.34, the Fair Work Ombudsman will not seek penalties and will take no further action in relation to the breach of the Fair Work Act. An employer and its individual directors or those involved in compliance, such as HR staff or bookkeepers therefore limit their risk to just the amount of the underpayment.

Alternatively, an employer may dispute the contents of the notice where it does not agree that there has been an underpayment or other breach. This must be done before the deadline for compliance – it will not be adequate to argue later that you did not agree with the contents of notice so did not respond or comply.

Should a Compliance Notice not be complied with for any reason and a prosecution commenced, early advice can still assist in minimising the penalty ordered by the Court. Early contrition, involvement in the proceedings to minimise costs to the Ombudsman, compliance with the notice prior to judgment, and many other factors can assist in reducing the penalty ordered by the Court.

However, the main purpose of penalties in these matters is to deter the individuals involved and other businesses from engaging in similar conduct. Therefore where at all possible it is best to avoid being issued a Compliance Notice at all, by ensuring employees are properly paid, good records are kept and by cooperating with any investigation or mediation by the Fair Work Ombudsman. If one is issued, it is important to take advice and either comply with the Compliance Notice as soon as possible or take steps to dispute it.

Our Employment Law Team assists employers across many industries with compliance issues, including both proactive advice and advocacy.

Our team is highly skilled and experienced in advising on all aspects of Employment Law. Contact us today if you need advice or representation in this area.

*The information provided in this website serves as a general guide and does not constitute legal advice. It is based on our research and experience at the time of publication. Please consult our knowledgeable legal team for any specific inquiries or advice relevant to your circumstances, as the content may not have been updated subsequently.