Disgruntled employee takes action against employer

Background

A small business (ABC Company), with five employees in the hospitality industry recently found itself facing a range of actions from a disgruntled employee.

Initially the employee, who we shall call Timothy for the purposes of this case study, had been engaged as a contractor for approximately six months providing services under his ABN.

During the contract period a range of complaints were received by ABC Company in relation to Timothy.  Complaints varied from interpersonal issues with Company employees and their customers, together with some alleged safety breaches.

ABC Company management felt that things were not going to work out with Timothy, however wanted to give him every opportunity to succeed.

ABC Company management had some informal discussions with Timothy. However, no records of the discussions were maintained.  During these discussions Timothy indicated he had some mental health issues (outside of work) and some financial constraints.  He sought to secure additional shifts and greater employment security.

ABC Company management offered Timothy a permanent full-time role on a daily rate for all hours worked.

Timothy performed his work well, however had difficulties being part of a team and there continued to be a range of complaints relating to his interpersonal skills and safety practices.  Some informal discussions took place over a period of three to four months.

An altercation took place between ABC Company management and Timothy following him allegedly throwing a knife in frustration in the kitchen.  Timothy ‘stormed out’ and did not report to work the next day.

ABC Company provided Timothy with a Show Cause letter asking him to respond to a series of allegations and advise why he should maintain his employment.  A meeting was scheduled and Timothy was provided with the opportunity to have a support person.

Timothy’s employment was terminated following this meeting as he was unable to provide reasonable justification for his actions.

Actions Taken by Timothy

  1. Lodged a WorkCover claim (after his termination) alleging workplace stress due to excessive hours and interpersonal issues
  2. Lodged a complaint with the Fair Work Ombudsman alleging:
    • Sham contracting, alleging that the duties performed by him were consistent with those of ABC Company employees
    • Underpayment, alleging that he worked 10-12 hours each day and was required to work Saturdays and Sundays (on occasion) and he was not appropriately compensated.

Response to Timothy’s Actions

  • ABC Company submitted the WorkCover claim and requested that it be investigated due to the mitigating circumstances surrounding the claim.
  • An investigation was conducted.
    • The insurer accepted the claim as the employer was unable to formally demonstrate that:
      • Discussions had been held with the employee and expectations had been set relating to his behaviour and work performance
      • Support had been provided e.g. Employee Assistance Program
      • Time and attendance records were maintained.
  • The employer did not maintain time and attendance records.  They have subsequently introduced a system whereby they will record time and attendance going forward. As a result of this the following is being implemented:
    • A review is being conducted under the applicable Award of what Timothy would be entitled to under the Award versus his Daily Rate to assess if there is an underpayment
    • As no time and attendance records are kept the review is being conducted assuming 10 hours per shift has been worked
    • Based on this review it appears that Timothy may be deemed to be an employee, however a Court hearing is required to get a ruling
    • If an underpayment is identified discussions will be held with Timothy to attempt to negotiate a settlement, including covering this in a Deed of Settlement
    • Based on the above actions a review will be conducted of all existing employees to ensure compliance with all obligations.

Implications for Employer

Resulting from Timothy’s complaint the following have occurred:

  1. A potentially costly workplace stress WorkCover claim has been accepted.  This could result in an increase in ABC Company’s WorkCover premium
  2. ABC Company is addressing the underpayment (around $18,000)
  3. With underpayments there is always the potential of penalties being incurred.  Under the Fair Work Act penalties for underpayments can lead to:
    • repayment of the underpayments, and
    • attract penalties of up to $63,000 per contravention for companies and up to $12,600 per contravention for individuals.
  4. Recent penalties include:
    • A & S Wholesale Fruit and Vegetables Pty Ltd was ordered to pay $200,000 in penalties in 2019 for underpayments, failure to provide employees with timely payslips and falsifying records
    • A Brisbane Bakery was ordered to pay $26,400 in penalties in December 2020 for underpayment of a junior employee and failure to comply with compliance notices
    • Following the introduction of the vulnerable worker legislation in 2017 the Fair Work Ombudsman v Tac Pham Pty Ltd & Anor (2020) handed down penalties of $230,040 (ten times normal amount due to it affecting vulnerable workers) following just $5,111 in underpayments.
    • The Fair Work Ombudsman has secured a total of $232,545 in penalties in Court against the company that operates ‘Barry Café’ in the Melbourne suburb of Northcote, and two of its directors after they deliberately underpaid 73 staff members more than $180,000.

Employer Best Practice

  1. Conduct assessment of the employment arrangement i.e., refer to ATO guidelines Employee or Contractor – seek assistance if required
  2. Have current employment contracts in place
  3. Be aware of Award entitlements.  Even if a contract has a Set-Off clause a contract cannot take away the rights of employees which are a part of their minimum legal entitlements. Thus, these standards will continue to apply and override any employment contract in place which provides lesser entitlements than the applicable award or NES.
  4. Be aware many Awards do not allow an annualised salary to be offered at the outset therefore an employment contract may be offered initially and discussions may need to be conducted with the employee post employment to enter into an Individual Flexibility Agreement (IFA)[1].
  5. An employment contract must meet the BOOT (Better Off Overall Test)[2].
  6. Provide new contracts to your employees when they move into a different role to ensure that terms and conditions are applicable to the new employment arrangement.
  7. File notes – when you conduct discussions (including informal discussions with an employee) make a note of the discussions.  If as a result of an informal discussion the conduct does not improve take appropriate action – this may include conducting a formal discussion with the employee ensuring they are provided with the opportunity to have a support person.  Notes of formal discussions should be maintained.  A letter to the employee outlining the issues raised and expectations set is beneficial.

If you have a Disciplinary Policy and/or other policy in place ensure that any discussions are held in accordance with the applicable policy.

  • Any actions taken must follow the principles of procedural fairness.  There are three main components to procedural fairness:  the opportunity to be heard; there must be no bias; and the decision must have some basis in fact or reasoning. 
  • Time and attendance records have to be maintained.  These records are required under various legislation and can be very beneficial in reducing employment risk.  Records must be kept for seven years.
  • Underpayments – be mindful that underpayments can happen.  It is a good practice to conduct ad hoc checks to ensure your employees are being paid as a minimum in accordance with their industrial instrument i.e., Award. 
    • Wage rates covered by Awards are generally adjusted on the first full pay period after 1 July annually.  (In 2020, due to COVID-19, wages increases were staggered).
    • Ensure that wage adjustments achieve the weekly and/or annual rates listed.  Sometimes four decimal points need to be utilised,

e.g., Level 2, General Retail Industry Award pay rate 2019 was $21.92 and weekly rate $833.00 – $21.92 X 38 hours per week = $832.96. 

  • If there is an underpayment there may be an obligation for the preceding 6 years
  • Employee Assistance Program (EAP).  If an employee indicates that they have mental health concerns and you are positioned to have an EAP in place provide the employee with appropriate details.  Alternatively, if you do not have such a program provide them with details of appropriate free services which may include:

Beyond Blue; Sane Support Services; Black Dog Institute.

Additionally, if you are positioned to be able to provide support (e.g., adjusting duties/hours etc) for a greed timeframe this may be beneficial. Conduct confidential welfare checks with the individual at regular intervals, keeping a file note, to see how they are progressing.

In situations such as the above if you are uncertain it is quite often beneficial to seek assistance sooner rather than later to reduce the risks associated with such matters.  Please do not hesitate to contact WR Law and our Human Resources staff for assistance.


[1] IFA – An IFA is a written agreement used by an employer and employee to change the effect of certain clauses in their award or registered agreement. It is used to make alternative arrangements that suit the needs of the employer and employee.

[2] BOOT – A test the Fair Work Commission uses to assess registered agreements against awards. The registered agreement is compared to the relevant award to ensure the employee is better off overall under the registered agreement in order for it to be approved.

This article has been prepared for information purposes only and is not legal advice. For legal advice regarding your specific circumstances, please contact WR Law directly on (03) 5499 6131 or by email at admin@wrlaw.com.au

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