Presumptuous payroll rules end in heavy penalties for employer

In a stern warning for employers who “automate” certain parts of their payroll processes, the South Australian Employment Tribunal (the Tribunal) has slammed an employer with significant penalties for automatically deducting unpaid meal breaks from an employee’s day.

The Tribunal also imposed penalties for 10 minutes of unpaid time at the start of each shift, and for “voluntary” overtime offered and paid at base rates.

In delivering his decision, Deputy President Lieschke imposed a penalty 24 times the size of the total underpayments.


The allegations

The employee in this case had been engaged as a console operator at a petrol station from November 2015 to December 2016.

When he received his initial training the employee was told, verbally, that he was expected to attend work 15 minutes before the commencement of his shift. The employer’s written training material stipulated that he was to commence work 10 minutes before the start of his shift.

Also at his initial training, the employee was presented with a form that said:

“In accordance with the provisions of our Employee Collective Agreement I wish to work voluntary overtime for such hours as I request, subject to the Employer finding me such work and approving this request. I understand that this will be paid at the applicable hourly rate.”

This form relied on clause 4.2.1 of the employer’s collective agreement, which provided that employees would be given a “choice” to work overtime at their ordinary rate of pay; in the absence of this choice, any overtime would be paid at overtime rates.

The employee was provided with this form following an offer of “more work”; it was never discussed with the employee that any such additional work would typically be overtime.

Finally, the employee recorded that he took meal breaks through the employer’s time recording processes as and when he took them, however he only rarely took meal breaks as, working alone, there was no one to watch the store while he took such a break. Despite this, the employer’s payroll system automatically deducted 30 minutes from every shift for a meal break, regardless of whether or not a meal break was actually taken.


The finding on liability

In a decision issued on 3 June 2019, Deputy President Lieschke upheld all of the employee’s claims, finding that:

  • he was directed by his employer to commence work 10 to 15 minutes minutes prior to the start of his shift, and as such was entitled to be paid at total of $850.15 for that time;
  • he was not given a genuine “choice” of overtime rates or base rates for additional hours as required by the collective agreement, but rather was given a “take it or leave it” offer, and as such was entitled to overtime for any additional hours in the sum of $67.13; and
  • he was entitled to be paid for the 30 minutes that had been deducted from each shift as meal breaks, as he had always been required to work for the full duration of his shift resulting in an underpayment of $1,424.53.

The total amount of the underpayments found by the Deputy President was $2,341.81, with an order for $322 interest to be paid in addition.

The employer appealed the Deputy President’s findings to the Full Court of the Federal Court in late 2019, with the Full Court hearing the matter in late February 2020 and handing down its judgement at the end of March 2020, rejecting the appeal and upholding the Deputy President’s decision.


The decision on penalties

With the decision on liability being upheld, the case returned to Deputy President Liechske for the determination of what, if any, pecuniary penalty should be imposed for the employer’s contraventions of the Fair Work Act 2009 (Cth).

The Deputy President found that there was a “formalized corporate culture” of requiring small amounts of unpaid work from employees at the start of each shift, supported by a direction from managers and during the onboarding process that timesheets (when they were completed) were to only record the rostered start time, rather than the actual time of commencement. This necessarily resulted in the creation of falsified time records.

With respect to the automatic deduction of 30 minutes for unpaid meal breaks, regardless of whether or not they were taken, the deductions were “at least reckless” and “not the result of carelessness or a mistake”.

The Deputy President finally found that the “agreement” to work overtime at normal rates was a deliberate contrivance, and held that this was a “very serious” contravention however marginally mitigated by the fact that the employee only rarely worked overtime hours.

In determining the appropriate penalty, the Deputy President ordered that the employer pay penalties, to the employee, of:

  • for the unpaid work at the start of each shift – $27,000
  • for the deductions for unpaid meal breaks – $24,300
  • for the unpaid overtime – $13,500

To put this in perspective, the penalties ordered were;

  • for the unpaid work at the start of each shift – 31 times the size of the underpayment;
  • for the deductions for unpaid meal breaks – 17 times the size of the underpayment; and
  • for the unpaid overtime – 201 times the size of the underpayment.


The implications for employers

The decision is a timely reminder for employers that amounts paid to their employees must accurately reflect the time that the employee actually works.

Programming payroll systems to make presumptions around when employees are or are not working, such as not paying for hours outside the rostered shift even if timesheet or other data indicates that the employee worked longer, or assuming that meal breaks were taken despite no data supporting this, may result in a finding that the employer has “deliberately” contravened the Fair Work Act 2009 (Cth).

It is worth noting that since the employee’s employment ended in December 2016, the contraventions all took place before the commencement of the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (Cth) commenced, which significantly increased the maximum penalties for “serious” contraventions of the Fair Work Act 2009 (Cth).

For conduct occurring after 14 September 2017 that is done “knowingly” as part of a “systematic pattern of conduct”, an employer may face penalties of up to $630,000 per contravention.

Given the Deputy President’s conclusions as to how the contraventions arose from the conduct of the employer, it is entirely possible that had the dates of the employee’s employment been different, the penalties awarded may have been even more substantial.

Employers should ensure that they have systems in place to accurately record the time that employees work, and that pay is calculated according to the times recorded in these systems.

If employers are concerned about employees “gaming the system” by arriving early for a shift uninvited and claiming payment for that time, this should be dealt with as a disciplinary matter.

If you would like to discuss any issues arising from this article, or if you would like to have a confidential conversation about your employment practices, please do not hesitate to contact NRA Legal on 1800 572 679.