By Lauren Drummond

A recent prosecution by the Fair Work Ombudsman (FWO) highlights the importance of properly implementing flexibility agreements, especially when providing ‘all-in’ pay rates so as to avoid underpaying workers.

In FWO v VIP Security Services Pty Ltd (2018), the employer paid a flat rate of $24 per hour under the terms of its Individual Flexibility Agreements (IFAs). This rate was intended to have the workers ‘better off overall’ than if they were paid the base rates, allowances, penalties and loadings provided by the Security Services Industry Award 2010 (Award).

The company director claimed to be relying on legal advice to the effect that the rate was sufficient. However, evidence of the advice provided to him by his lawyers detailed that the operator should monitor the guards’ hours of work, including whether they were working overtime, more weekends than normal or more nights than normal. If this were the case, the director would be required to make appropriate changes to ensure that the workers would not be better off overall had they been paid as prescribed under the Award.

When a worker queried whether the rate was sufficient for the hours worked, he was dismissed.

FWO issued proceedings against the employer and its director for failing to pay its employees in accordance with the Award and engaging in unlawful adverse action against the worker raising the query.

The Court found the employer had engaged in 13 contraventions of the Fair Work Act (FW Act) in relation to underpayments pursuant to the Award and FW Act, including:

• failing to ensure employees were ‘better off overall’ under the IFAs;
• failing to pay overtime rates, Saturday rates, Sunday rates and public holidays;
• failing to pay various allowances and penalties, including night span penalty and broken shift allowances; and
• failing to pay personal leave and to reimburse employees for uniforms.

In assessing the appropriate penalty, the Court considered that the operator was aware of the requirement to pay employees Award rates and that his conduct in paying the flat rate was deliberate.

The Court rejected the operator’s submission that it was a mistake as a result of him being “new” to the industry. The Court was particularly concerned about his conduct in dismissing an employee for raising inquiries in relation to his employment.

The Court did note that the operator had cooperated with the FWO during the investigation and entered into admissions and agreed statement of facts following commencement of the litigation against him and his company.

However, the major factor in determining a penalty turned on the question of deterrence, particularly given that the individual operator continued to carry on a business providing security services on the Gold Coast (although the operator had wound up the security company that had been involved in the underpayments, the Court was unable to determine whether this was deliberate action in order to avoid penalties being imposed against the company).

In each of the contraventions, the Court imposed 85% of the maximum penalty to be imposed against the director (with a 10% discount for cooperation). The director was ordered to pay pecuniary penalties of $115,668 for his involvement in the contraventions.

Lessons for employers

All modern awards contain a flexibility term permitting an employer and employee to agree on an arrangement to vary the effect of the award in order to meet the genuine needs of the employer. The flexibility term requires that the individual flexibility arrangement results in the employee being better off overall than the employee would have been if no individual flexibility arrangement was agreed to.

Typically, an individual flexibility arrangement will take the form of an ‘all-in’ rate, rather than the employer being required to separately apply overtime rates, penalty rates, allowances and loadings for individual employees.

However, employers should monitor these arrangements closely to ensure employees are still being paid a rate that it is appropriate for the hours of work that the employee is actually working.

Employers can fall foul of the FW Act where individual employees work additional hours that attract higher rates, such as overtime or during specific times where penalties or loadings should be applied, such as shift loading, weekend penalty rates or public holiday rates, which results in the all-in rate leaving the employee worse off than had the award provisions been applied.

Employers are responsible for ensuring that they are familiar with the terms of the modern awards that apply to the employment of their employees and that the rates of pay are sufficient to meet their obligations and minimum pay requirements under the award. An employer (or individual) will not avoid penalties by claiming ignorance of the applicable industrial laws.