Employer required to pay penalties of $163k for underpayment of employee entitlements

The recent Federal Circuit and Family Court decision of Baldacchino v Bloombird Education Pty Ltd (No 2) [2023] FedCFamC2G 965 (27 October 2023) highlights the risk of cumulative civil penalties for employers who fail to pay employee termination entitlements in accordance with workplace laws.

The Court ordered that Bloombird Education pay civil penalties of $136,000 and its director to personally pay civil penalties of $27,200, for failing to pay a former employee her annual leave entitlements on termination of employment. The Court ordered the penalties to be paid directly to the employee, in addition to the $42,374 in compensation for the unpaid annual leave entitlement.

The Court held that by failing to pay the annual leave entitlements, the employer and its director contravened four distinct provisions of the Fair Work Act 2009 (Cth) (FW Act) regarding the payment of annual leave, annual leave loading and superannuation and its employer record keeping obligations.

The Court held that where an employer fails to pay out employee entitlements because they did not have the financial means does not make the failure to pay the entitlements any less deliberate.

With the Federal government’s recent Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 proposing a fivefold increase in civil penalties for underpayment offences under the FW Act and introducing a national criminal wage theft offence, this decision is a timely reminder to employers, directors and managers of the importance of ensuring compliance with workplace laws.

To reduce the risk of an underpayment claim, employers should:

• ensure employees are paid at least in accordance with the applicable lawful minimums, including by identifying the correct industrial instrument and classification for each employee, where applicable;
• ensure compliance with employee record keeping obligations under the FW Act, including by keeping accurate time and wage records;
• ensure employee entitlements on termination are paid in accordance with applicable laws (noting that certain industrial instruments and legislation may require payment of some entitlements within specific timeframes);
• obtain legal advice as soon as possible if they identify an underpayment or potential underpayment; and
• be aware that relevant managers and directors who are ‘involved in’ an underpayment can be held personally liable and made to personally pay compensation and/or civil penalties.

About the Authors

Stephen Schoninger is a Partner and leads the employment and workplace law practice at Avant Law, based in Sydney. Stephen has 20 years’ experience practising exclusively in employment, industrial relations and discrimination laws. Stephen is called on for his ability to plainly advise on and pragmatically apply legal principles to manage and resolve complex issues arising in the workplace. Stephen advises employers and employees in the private and public sectors on all areas of workplace law and is an experienced litigator of work-related claims. Stephen also conducts workplace investigations and delivers workplace compliance training. He regularly presents seminars on topical employment and workplace law issues.
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Emma McCulloch is an Associate in the employment and workplace law practice at Avant Law, based in Sydney. Emma has experience providing employee and employer clients with practical advice on all aspects of employment law, including termination of employment and related claims, bullying and discrimination. Emma joined Avant Law from a career in legal publishing, in Sydney and London, commissioning content for Practical Law.

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