Aged Care Services Australia Group Pty Ltd (ACSAG) has recently provided the Fair Work Ombudsman (FWO) with an enforceable undertaking to reimburse its workers almost $4.8 million dollars, after their own review revealed widespread underpayments over a 6 year period.  

ACSAG’s pay review  

ACSAG, a wholly owned subsidiary of Japara Healthcare Ltd (Japara), conducted an internal review of its Australian pay practices in November 2014.  The review revealed the company had been calculating overtime payments incorrectly for 4850 of its employees including registered nurses, allied health workers and support staff across Victoria, New South Wales, South Australia and Tasmania.  

The underpayments for each employee ranged from less than $100 to more than $5000 per employee from November 2008 until November 2014. In total, the underpayments amounted to a startling $4,782,785.  

The underpayments were in breach of 24 different industrial instruments including modern awards, enterprise agreements, collective agreements and previously applicable State & Federal awards (in application prior to the introduction of modern awards).  Each breach constituted a contravention of the Fair Work Act (Cth) 2009 (FW Act) bringing with it the potential for significant fines of up to $51,000 per offence.

Notification to the Fair Work Ombudsman  

Interestingly and given the potential fines perhaps wisely, ACSAG self-reported their underpayments to the FWO in December 2014.  The FWO’s investigation established that ACSAG was not deliberately trying to evade its responsibilities but rather it had inadequate systems, processes and governance in place to prevent the underpayments. Ombudsman Natalie James said the systematic governance failures were a concern for such a large company.  

ACSAG’s self reporting and co-operation with the FWO has resulted in the parties entering into an enforceable undertaking.  While the undertaking contains substantial obligations (detailed below) and requires ACSAG to repay the amount in full, it has meant that the company has avoided prosecution and the consequential fines and declarations that would likely follow.  

The undertaking  

In addition to repaying the full $4,782,785, Japara and/or ACSAG are also obliged to:

  • fully implement a new workplace management system, including a fully electronic time recording system, by 31 December 2015;
  • develop and implement systems within 60 days to ensure:
    • current and future employees are aware of the industrial instrument that applies to their employment;
    • monetary entitlements that are not automatically calculated in the current payroll system are paid in accordance with any applicable industrial instrument;
  • engage a third party auditor to undertake a further audit of all overtime entitlements by 30 November 2015;
  • pay all amounts identified in the final audit as being owed to current employees within 14 days of the final audit;
  • take steps to find and inform all ex-employees of any money owed to them as identified in the final audit;
  • design and implement a training program for all roles with managerial responsibility for human resources, employee entitlements or pay roll function;
  • engage an accounting or audit professional to conduct future audits of ACSAG to ensure continued compliance with the FW Act for the next 3 years;
  • to donate $20,000 to Alzheimer’s Australia Dementia Research; and
  • offer financial assistance to those employees whose underpayments exceeds $10,000.

If Japara and/or ACSAG fails to comply with the enforceable undertaking the FWO may apply to the Court for orders directing them to comply with the undertaking or to pay compensation to those that have suffered a loss due to their failure to comply.  

Lessons learnt  

While ACSAG and Japara have managed to avoid costly litigation and prosecution due to their co-operation with the FWO, they have not emerged unscathed. Their situation demonstrates how costly an inadvertent breach of a modern award or enterprise agreement can be.  

The case serves as a timely reminder to even large employers that they too can make mistakes and that a small error in payment calculations can result in a hefty bill for back payment of wages that they were not budgeting for. Employers should be mindful that electronic pay roll systems are not infallible and they alone are responsible for ensuring that appropriate pay and penalty rates are identified in all applicable industrial instruments and applied to each employee.   

The sheer volume of industrial instruments that were breached in this instance also highlights the complexity of the Australian industrial relations system in recent years.  It may be surprising for business to think that that a company could have been subject to 24 different industrial instruments in a 6 year period, but that is the result of the changes that we have seen since 2006.  In the majority of instances where there is a current modern award that applies to a business there will be a State or Federal award that precedes it and with which the business was most likely required to comply.  

We strongly encourage businesses to review their operations and ensure that they (a) have identified all applicable industrial instruments that apply, (b) reviewed their payroll practices to guarantee they are paying in accordance with these instruments and (c) conducted a spot audit to identify any past underpayments.  It is far preferable for a business to identify and rectify their own underpayments internally than to wait for an employee complaint to be lodged or the FWO to come knocking.