Court Issues Stern Warning to Employers on Preventing Underpayments

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Court Issues Stern Warning to Employers on
Preventing Underpayments
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• 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.

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

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• 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.

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• 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.

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• 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.

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• 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.

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• 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.

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• 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 programsplease contact us for more
  information.

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• 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
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