A Queensland Pizza Hut franchisee was hit with $216,700 in penalties following a successful prosecution by the Fair Work Ombudsman (FWO). He was found guilty of using a sham contract to underpay a delivery driver and then falsifying records in an attempt to cover it up.

Dong Zhao, owner and operator of a Pizza Hut franchise on the Gold Coast, was fined $36,700, while his company Skyter Trade Pty Ltd received an additional $180,000 penalty.

Instead of paying the driver as an employee, Zhao had asked him to provide an ABN so he could be paid as an independent contractor, at a flat rate of $16 per hour.

As a Pizza Hut employee however, he would be legally entitled to a minimum hourly rate of $20.36 and up to $40.72 per hour for overtime and public holiday work.

Additionally, the driver was not properly paid his entitlements, including a per-delivery rate for use of his own vehicle, superannuation, or a uniform allowance.

The FWO viewed that the worker was an employee, not an independent contractor, as Zhao’s company had a level of direction, supervision and control over the driver and he was not running an independent business.

Zhao had actually been warned by the franchisor not to engage in sham contracting arrangements and Judge Michael Jarrett of the Federal Circuit Court found that his contravention of the Fair Work Act 2009 (Cth) (FW Act) was “serious” and “deliberate”.

During the investigation, Zhao and his associates had further breached workplace laws by providing false records.

Judge Jarrett stated: “The failure to keep proper records and to provide pay slips to employees is an insidious practice that is only aggravated by the creation and provision of false documents designed to conceal the employer’s wrong doing”.

“Employers and those that control them ought to be under no misapprehension that the creation and provision of false records is a serious matter and will be treated seriously by the Court”.

The driver’s wages and other entitlements have now been back-paid in full.

Zhao was also ordered to commission retrospective audits to rectify any other underpayments found at his Pizza Hut franchise, commission future audits and display a notice to his staff informing them about minimum lawful pay rates and the FWO’s contact details.

Under the FW Act, employers can face the following penalties for sham contracting.

Up to $63,000 for companies, per contravention.

Up to $12,600 for individuals, per contravention.

A reverse onus of proof can now also apply to employers who don’t meet their record-keeping or payslip obligations. If they cannot provide a reasonable excuse, they will need to disprove allegations of underpayments made in court.

Last week, the FWO took legal action against the multinational company Foodora for allegedly committing multiple breaches of sham contracting.

The outcome of this case, being heard in the Federal Court in Sydney on 10 July, could have massive consequences for food delivery companies such as Deliveroo and Uber Eats that rely on the use of contract workers.