UNDERSTANDING THE WORKPLACE OMBUDSMAN We have had a lot of clients lately who have been investigated by the Workplace Ombudsman for underpayment of employee entitlements. The Office of the Workplace Ombudsmen is the Federal Government body charged with ensuring that employers comply with the Federal workplace relations laws. The investigations have arisen by either a current or former employee making a claim to the Workplace Ombudsman that they have been underpaid or not received their correct entitlements; or a target audit is undertaken at the discretion of the Workplace Ombudsman. Recent target audits have included cleaning contractors, retailers, restaurants and cafes, fast food outlets and juice bars. An Inspector has the power to investigate whether an employer has acted contrary to Federal workplace laws, in particular and award, workplace agreement or the Australian Fair Pay and Conditions Standard (‘Standard’). The Inspector also has the power to enforce compliance with these laws. The Inspector can issue infringement notices in the form of ‘on the spot fines’ and can also institute legal proceedings. We thought that it may be helpful to provide you with some insight into how the Workplace Ombudsman operates and the most common mistake employers are making. The Investigation 1. If an employee complains to the Workplace Ombudsman that they believe they have been underpaid their entitlements, the Workplace Ombudsman will write to the employer informing it of the claim and outline the claim made by the employee. The employer will be given 14 days to check its records and resolve any underpayment of wages and entitlements (if any). At this stage, the Inspector will not have made a decision as to whether or not any claims made by the employee are valid. If the matter is not resolved within the 14 day period a formal investigation will begin. 2. When a formal investigation begins, the Inspector will assess the claim. The employer will be contacted and asked to voluntarily produce documents such as the employee’s time and wage records. If the employer does not provide the documents voluntarily, a ‘Notice to Produce Documents’ will be served on the employer by the Inspector and a failure to comply with this Notice could result in prosecution. An Inspector also has the powers to enter the employer’s workplace and view and/or take copies of relevant documents and time and wage records. An Inspector may issue an infringement notice of $110 for an individual and $550 for a company for failing to keep time and wage records and for failing to provide employees with pay slips. 3. Following the formal investigation, the Inspector will determine whether the employee’s claim is valid. If the Inspector finds the employer has breached the law or underpaid entitlements, the Inspector will serve the employer with a ‘Breach Notice.’ The Breach Notice will give the employer 14 days to remedy the underpayment or breach by making a payment of the monies owed to the employee(s). In cases of financial hardship an Inspector may allow an employer to pay in instalments. 4. If the employer does not rectify the matters outlined in the Breach Notice, the Workplace Ombudsmen will notify the employee of their legal options. The Workplace Ombudsmen may commence litigation against the employer. The maximum penalty for each breach is currently $33,000 for a corporation. Common Mistakes The most common mistakes we see from employers, both those being investigated and others, who come to see us generally, relate to incorrect payment of the minimum wage. The result being, employers are inadvertently underpaying their employees. The most common mistakes made are: 1. Employers not passing on wage increases because they have not kept up to date with Federal or State minimum wage increases; and 2. Employers who believe that they should pay their employees under the State jurisdiction, when they are actually bound to observe the Federal workplace relations laws as a result of the Workplace Reforms in March 2006. Federal Workplace Relations Regime If your business is a ‘constitutional corporation’ – being a trading or financial corporation the terms and conditions of employment for all employees fall under the Federal workplace relations regime. Determining whether your business is a ‘constitutional corporation’ for the purpose of the workplace relations reforms is proving to be a difficult issue for some employers, such as Councils, private schools and not for profit organisations. Generally speaking if the business: 1. is incorporated (Pty Ltd or Ltd) or is a Trust with a corporate Trustee, then it will be a constitutional corporation (‘Company’) and will come under the Federal workplace relations regime; or 2. is operated by a sole trader; a partnership or a Trust without a corporate Trustee, the business will not be a constitutional corporation and will continue to operate under the State industrial relations regime. The Federal workplace relations reforms (commonly known as ‘WorkChoices’) commenced on 27 March 2006. From that date, Companies that employed workers under the State industrial relations regime were automatically transferred to the Federal workplace relations regime. The result being that, if the employees were covered by a: 1. State award, the terms and conditions of their employment became governed by a Notional Agreement Preserving the State Award (NAPSA’s). For most employers and employees the terms and conditions of the State Award were incorporated into the NAPSA except for the rate of pay and some non-allowable award matters. The NAPSA even retained the name it had as a State Award; or 2. State Certified Agreement, the agreement became a Preserved State Agreement under the Federal system and continues to operate in accordance with provisions of the Federal Workplace Relations Act 1996. For employees of Companies, the rates of pay in the State Award were frozen on 26 March 2006 and from the commencement of the workplace reforms on 27 March 2006, only Federal wage increases apply. The current pay rates are found in Pay Scales attached to the NAPSA’s. The Pay Scales apply to all award employees employed under the Federal workplace relations regime who are not covered by a Workplace Agreement. The above information can be very confusing for employers and many find they do not know which rate of pay applies to their employees, or they assume the correct rate of pay is that in the State Award. The confusion can be compounded because the NAPSA’s and the Pay Scales set by the Australian Fair Pay Commission have the same title as the State Awards that applied prior to the commencement of the workplace reforms. It is important that employers realise that the rates of pay in the State Awards from 27 March 2006 are different to those contained in the Federal Pay Scales. If an employer under the Federal workplace relations regime pays an employee the rate of pay from the State Award and this is less than the rate which applies under the Pay Scale, the employer will have underpaid the employee and will have breached the Workplace Relations Act 1996. Employers also need to keep informed regarding pay rises. Being unaware of a pay rise will not be considered a valid excuse by either the Workplace Ombudsmen or the courts for underpaying wages. Since the workplace reforms there have been two Federal wage increases – 1 December 2006 and 1 October 2007. State wage increases are usually effective on 1 September of each year. Main implications for Employers: 1. Employers need to determine whether they are in the Federal or State workplace relations regime as this determines the pay rates for their employees. If you are unsure about which jurisdiction your business sits in or you are confused about where to find the correct rates of pay you may telephone us or the Workplace Info line. 2. If employees have been paid the incorrect wage rates, it should be rectified as soon as possible by calculating the underpayment and paying it to the relevant employees. 3. If the Workplace Ombudsman investigates your workplace due to a claim or conducts a target audit: • co-operate, you are less likely to receive an infringement notice or be prosecuted if you do so. • the Workplace Ombudsmen is interested in ensuring the law is complied with and is impartial. If you have made a genuine mistake you will be given an opportunity to back-pay your employees and to rectify any errors; • if you have not underpaid your workers and have complied with the record keeping and payslip requirements of the Workplace Relations Act 1996, no action will be taken against you and the investigation will be closed; • if you have underpaid your employees and do not cooperate with the Workplace Ombudsman to correct the error, you will most likely by prosecuted for breaching the legislation and the award and can be fined up to $33,000 per offence, in addition to being ordered to correct the underpayment to employees with interest. By way of example, in a recent decision of the Federal Magistrate’s Court, a Queensland company, Elson Bros Pty Ltd trading as Brisbane Rock Sales and Helidon Dimensional Sandstone, was fined $22,000 for underpaying one of its employees and ordered to pay the employee $12,000 in underpayment of entitlements following an investigation by the Workplace Ombudsman. The Court said that the penalty reflected the company’s failure to co-operate during the investigation and its lack of contrition. If you would like further information in relation to the information provided in this Employment Update please contact Aitken Legal. This Update should not be taken as legal advice. It is general information only. If you require legal advice in relation to any issues covered in this Update you should seek independent legal advice particular to your circumstances.