A record fine has been handed down to Commonwealth Bank for underpaying 7,400 employees. In addition to the $10.3 million in fines CBA has also been ordered to pay the legal and administrative costs that the Fair Work Ombudsman incurred in prosecuting the bank. This record fine is yet another clarion call to businesses to review their own systems for compliance. $10.3 million is an eye-watering amount, but businesses are reminded that these breaches occurred before the wage theft criminalisation changes, that would have resulted in the bank facing fines at least 6 times higher.
Justice Robert Bromwich yesterday imposed a fine of about $7.3 million on the CBA itself and just over $3 million on subsidiary Commonwealth Securities Limited, while ordering them to pay the costs of the Fair Work Ombudsman (FWO).
As ACAPMA covered at the time here the FWO alleged in civil proceedings in 2021 that the Commonwealth Bank had “knowingly” underpaid thousands of employees over a five-year period through the use of invalid Individual Flexibility Agreements that did not provide for the employees to be better off overall.
The underpayments to the 7,425 impacted staff over 5 years amounted to $16.44 million, that was backpaid in this particular case.
In 2019 CBA self reported to the FWO that it had made underpayments of various types over the previous 9 years. The bank processed backpayment to impacted staff at that time of over $56.5 million.
Yesterday’s judgment said the bank admitted liability “after lengthy negotiations between the opposing parties over a considerable period of time”, obviating the need for a liability hearing, and noted that the underpayments had been rectified.
The FWO had pushed for a $14 million fine, while the CBA had argued that $2.9 million in fines was appropriate.
But Justice Bromwich stressed the need for general deterrence, saying the obligations are “readily able to be complied with, and proper checks to ensure that was taking place were not hard to implement.”
“That did not happen, and the message needs to be loud and clear that this is not good enough and will not be tolerated, most significantly for other would-be contraveners, but also as an ongoing warning for CBA and therefore the CBA Group of which it is the dominant member.”
“What needs to be deterred is a system being left in place that allows for basic errors to be made without an adequate system of checking or detection and thereby correction, and as a result erroneous assumptions made and untenable beliefs held with serious consequences for a large number, if not proportion, of employees,” he said.
“While no penalty within the available range is likely to materially hurt either CBA or CommSec given their size, wealth and resources, nor is a substantial penalty likely to be ignored.
“Any other lesser institution, especially finance sector institution, who becomes aware, even in relatively general terms, of the nature of the contravening conduct and of a substantial and even disproportionate- to-culpability sanction being imposed is likely to be deterred,” Justice Bromwich continued.
“The outcome will also likely become known to the legal and other professional advisers to such companies, magnifying its deterrent effect. It will be more likely that close attention will be given not just to compliance itself, but to the adequacy of systems for checking for compliance.”
The judge said the bank’s arguments focused in key parts on the nature of the errors and misunderstandings that led to the contraventions taking place, “rather than focusing on the systems and processes that allowed that situation to arise in the first place, and the apparent lack of audit and other checking systems to ensure compliance on an ongoing basis”.
“It is that lack of adequate systems that allowed the contraventions to take place and to continue for so long.”
“Other employers, and especially large employers in the financial services sector, must be made aware that it is simply not worth the candle to have inadequate compliance systems in place.
“The only way to achieve this is by way of still substantial penalties being imposed, but being less than would have been necessary in the absence of cooperation (which is to be encouraged and rewarded), which also encompasses remediation for the past and extensive prevention steps and strategies for the future. ”
Justice Bromwich said the contraventions fell into four categories:
- Failing to ensure that employees were better off overall in the payment of entitlements under individual agreements (IAs) as compared to the applicable enterprise agreements (EAs), and under the applicable EAs as compared to the industrial award that otherwise applied.
- Contravening the BOOT from September 2017, within a newly legislated category of “serious contraventions” under s557A of the Fair Work Act introduced in the Protecting Vulnerable Workers amendments (see Related Article), forming part of a systematic pattern of conduct over about 10 years.”This occurred in circumstances in which senior staff of both respondents knew facts that should have sounded a warning that they were not meeting EA obligations but took no steps to address these failures for a number of years,” the judge said.
- Failing to pay certain employees’ full entitlements under applicable enterprise agreements, which applied to employees who had entered IAs that were not valid “individual flexibility arrangements” (IFAs) for the purposes of the Fair Work Act.
- Misrepresenting to employees that they would be better off overall under an IA than under the applicable EA and that remuneration paid would satisfy their EA entitlements, “when neither was true”.
The FWO said last night that the fines were the highest it had secured in a legal action, with CBA and CommSec failing to put adequate checks and safeguards in place to ensure the enterprise agreements and individual flexibility arrangements used for their employees were implemented in a lawful manner.
This included the companies failing to implement the required system of regular reconciliations and top-up payments necessary for ensuring its employees were receiving their basic lawful minimum entitlements.
Justice Bromwich found that senior staff at CBA and CommSec had been put on notice of potential non-compliance issues and “knew facts that should have sounded a warning”, but took years to address non-compliance issues, and that “responsible HR managers had disregarded or been indifferent to the risk that [IFAs] were not meeting the employees’ entitlement.”
Fair Work Ombudsman Anna Booth said it is completely unacceptable for such a large, well-resourced corporate employer to have such a poor attitude towards ensuring it paid its staff their basic lawful entitlements for the work they performed.
“Senior managers at CBA and CommSec failed to put basic safeguards in place to ensure its approach to remunerating staff did not lead to underpayments and they were far too slow to take action once clear risks of non-compliance were brought to their attention.”
Booth said CBA did the right thing by self-reporting its non-compliance to the FWO, co-operating fully with the investigation, making admissions to the contraventions and executing a widespread remediation program that involved back-paying staff at multiple companies across the CBA Group for underpayments dating back to 2010, which were beyond the statute of limitations FWO could enforce in court.
However, Booth said the employees ultimately should have been paid correctly in the first place.
“It is extremely disappointing that companies with such extensively resourced internal human resources and legal functions could have such a poor approach to ensuring it paid its staff their basic lawful entitlements.
“For years now, the Fair Work Ombudsman has been highlighting that large corporate employers need to place a much higher priority on putting systems and processes in place to ensure they pay their employees’ full lawful entitlements.
“Employers cannot put in place systems that prioritise their financial or competitive advantage without also putting in place strong governance to ensure that those systems meet minimum entitlements.”
“The case highlights that having a poor corporate culture towards compliance can result in serious consequences, including facing enforcement action and suffering reputational damage.”
Justice Bromwich found that CBA and CommSec were “amply able to prevent anything of this nature occurring in the first place, let alone over such a substantial period of time.”
“A spokesperson for the bank has outlined that “The historical issues before the Court were self-reported by CBA to the FWO in 2018.
“These issues should never have happened and we again apologise to our people impacted by these past errors.
“CBA has remediated all of the underpayments, including interest and superannuation.
“We have invested substantial resources in improving our systems and processes to address the risk of underpayment of employee entitlements,” it said.
While FSU national secretary Julia Angrisano said “The CBA and Commsec used individual agreements to rip off workers and ignored our repeated attempts to have the matter resolved and the stolen funds returned.
“The bank knew exactly what it was doing but refused to acknowledge that its employment practices amounted to wage theft until the Fair Work Ombudsman became involved.”
Angrisano said the CBA engaged in a “systematic scheme to underpay staff by using individual flexibility arrangements (IFAs) which was supposed to remunerate employees with higher pay rates and bonuses in return for giving up annual leave loading, overtime pay, rostered days off and other allowances”.
“This is one of the largest cases of wage theft yet detected in Australia and one which should be of concern to all workers.
Learnings for all businesses
All businesses must understand the fundamental of Individual Flexibility Agreements prior to implementing them, and ensure that a rigorous system for reviewing and testing the modelling of the Agreement against the Award…which is used.
What is an IFA?
An individual Flexibility Agreement (IFA) is an agreement between the employer and the individual employee to modify some eligible clauses of the applicable Award.
The typical use of an IFA in fuel transport is to create a “racked” or “common hourly” rate that provides for all allowances and penalties that would ordinarily have to be shown on the payslip separately and individually, but with the use of an appropriate and compliant IFA can be shown as a single rate (or a series of rates) that provides for all of those elements and makes payroll simpler to implement.
When is an IFA appropriate?
An IFA is appropriate when there is a stable, known roster for the employee, at least for the core ordinary hours. This is a requirement because the IFA must be tested against the Award to ensure that the employee is better off overall
Elements of a compliant IFA
In order for the IFA to be compliant it must;
− Provide for the employee to be better off overall with the IFA compared to the Award unmodified
− Be written down
− Be signed by both parties
− Clearly identify the applicable Award
− Clearly identify the clauses of the Award that are to be modified, and how they are to be modified
− Clearly identify that the IFA can be terminated by either party with 90 days written notice
− Be reviewed regularly to ensure that the IFA continues to provide a Better Off Overall situation for the employee
Without these elements an IFA will not be deemed to be legitimate or appropriate and the business may face penalties for the subsequent failure to meet the requirements of the Award (such as for failure to show allowances separately, or even an underpayment claim for not paying the allowances).
More Information
For more information on Individual Flexibility Agreements ACAPMA Members can see the ACAPMA Employment Guide on IFAs.
Here to Help
Through the year ACAPMA Employment Professionals are available to assist members via employment@acapma.com.au.
This article is general in nature and covers things to consider, implement and watch out for in your business. They are provided as general advice and you should seek further advice on your situation by contacting one of ACAPMA Employment Professionals its free for members. ACAPMA membership is affordable at only $860 per year for a single site and valuable with sites gaining HR advice support and representation as well as a raft of other benefits and discounts.
Visit: https://acapma.com.au/membership/ to apply for ACAPMA membership.
Elisha Radwanowski BCom(HRM&IR)
ACAPMA
