In this week’s blog we take a look at whether an employer can require an employee to spend their own money in a particular way or to pay back money to the employer with reference to a recent employment law case. 

Section 325 of the Fair Work Act 2009 (Cth) provides that an employer must not directly or indirectly, require an employee (or prospective employee) to spend, or pay to the employer or another person, an amount of the employee’s money if:

  1. the requirement is unreasonable in the circumstances; and 
  2. for a payment – the payment is for the benefit of the employer (or a party related to the employer). 

These rules are about employers requiring employees to use the wages they have been paid in a certain way. There are separate rules which deal with deductions from an employee’s pay – i.e. where money is taken out of an employee’s pay, before it “hits” their bank account.

When can you reasonably ask an employee to spend or pay back money?

When it will be reasonable for an employer to require an employee to spend or pay back money will be dependent on the context in which the request has been made. The explanatory memorandum for the Fair Work Act provides the following examples: 

  • It will likely be unreasonable for an employer to require an employee to donate a proportion of his or her pay to a charitable or religious organisation nominated by the employer; and 
  • it may be reasonable for an employer to require an employee who is a tradesperson to spend money on tools required to perform his or her duties. 

The explanatory memorandum to the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017, which made amendments to the Fair Work Act in this area, provides for certain circumstances in which it will always be found to be unreasonable to require an employee to spend or pay back money. These include where the requirement involves undue influence, duress or coercion or if it is through a “cashback arrangement” where the employer requires the employee to repay part of the wages they have received back to the employer, typically in exchange for keeping the employee in employment or for sponsoring an employee on a visa.

What happens if an employer breaches this section?

This provision of the Fair Work Act is a civil remedy provision, which means that penalties may apply if an employer breaches this provision. Section 550 of the Fair Work Act also provides that a person who is involved in a contravention of a civil remedy provision is also taken to have contravened that provision and may also be liable to pay a penalty which can be seen in the case discussed below.

Fair Work Ombudsman v Easy Vaping Company Pty Ltd [2024] FedCFamC2G 66  

This matter was heard in the Federal Circuit and Family Court of Australia before Obradovic J and involved the determination of a penalty against Easy Vaping Company Pty Ltd (Easy Vaping), its director and sole shareholder Ms Chan and its operations and finance manager Mr Chan for contravening section 325 of the Fair Work Act. These proceedings were brought by the Fair Work Ombudsman on behalf of the employee in this matter (Mr Hong) following an investigation performed by the Fair Work Ombudsman into a “Cashback Arrangement” where Mr Hong was required to repay part of his salary to Easy Vaping. During the proceedings Ms and Mr Chan admitted liability to the contraventions of section 325 so the court was solely required to determine the applicable penalty for the three parties. 

Background

Mr Hong was employed by Easy Vaping on a full-time basis as a marketing specialist earning $22 per hour and was working in Australia under a Temporary Work (Skilled)(subclass 457) visa sponsored by Easy Vaping. Shortly after Mr Hong’s commencement the Australian Government’s policy for 457 visas was changed and required Mr Hong to be paid an annual salary of $65,000 per year as per his occupation, which equates to roughly $33 per hour. 

From this time Easy Vaping told Mr Hong that it would sponsor his 457 visa however, if it had to pay him a salary of $65,000 it could only afford to do this if Mr Hong agreed to repay to the company the difference between his old and new salary in cash (the “Cashback Arrangement”).

During the Fair Work Ombudsman investigation, the inspector found that Easy Vaping had contravened section 325 of the Fair Work Act through the Cashback Arrangement as the requirement to payback money was unreasonable in the circumstances, on the basis that:

  1. the Cashback Arrangement deprived Mr Hong of the benefit of his minimum entitlements;
  2. the Cashback Arrangement resulted in Mr Hong being paid less than his entitlements for the work that he performed in the relevant period; and
  3. it was not Mr Hong’s role or responsibility to assist with Easy Vaping’s purported financial difficulties; and

The FWO also considered that the Cashback Arrangement was directly or indirectly for the benefit of Easy Vaping on the basis that:

  1. Mr Hong paid the Cashback Amounts directly to Mr Chan in Mr Chan’s capacity as an employee of Easy Vaping;
  2. the Cashback Arrangement resulted in the creation of false payroll records; and
  3. the false payroll records created, enabled Easy Vaping to represent that it was meeting the minimum requirements of Mr Hong’s 457 Visa.

Following the investigation, Easy Vaping were required to pay back to Mr Hong the $13,000 he had paid to Easy Vaping through the Cashback Arrangement. The matter was then referred to the Federal Circuit and Family Court of Australia for determination of the penalty.  

In their submissions, both the Fair Work Ombudsman and Easy Vaping proposed to the Court that an appropriate penalty would be 40 to 50% of the maximum penalty, with a 15% discount on the penalty for their early admissions. It is important to note, that whilst the parties can reach an agreement on what they believe the penalty should be, the court is not required to comply with this and may issue a greater penalty if they believe it is in the public interest to do so.  

Determination of the appropriate penalty

In determining the penalty that should be applied, Obradovic J highlighted that the primary purpose of a pecuniary penalty (a monetary fine) is to promote the public interest in compliance with the law, and to ensure that the price of contravention can not be seen as the price of doing business by the contravener. Her honour went on to highlight the relevant factors that go towards penalty as follows: 

  • The nature and extent of the conduct which led to the breaches;
  • The circumstances in which that conduct took place;
  • The nature and extent of any loss or damage sustained as a result of the breaches;   
  • Whether there had been similar previous conduct by the respondent;
  • Whether the breaches were properly distinct or arose out of the one course of conduct;
  • The size of the business enterprise involved;
  • Whether or not the breaches were deliberate;
  • Whether senior management was involved in the breaches;
  • Whether the party committing the breach had exhibited contrition;
  • Whether the party committing the breach had taken corrective action;
  • Whether the party committing the breach had cooperated with the enforcement authorities;
  • The need to ensure compliance with minimum standards by provision of an effective means for investigation and enforcement of employee entitlements; and
  • The need for specific and general deterrence.

Whilst Obradovic J noted that whilst these factors were a convenient checklist they did not restrict the discretion of the court to impose an appropriate penalty in the matter. 

The outcome

In addressing the above factors, Obradovic J noted that the Easy Vaping’s conduct was deliberate, was objectively serious to warrant meaningful penalties and was conducted by the highest levels of management in the company.  Obradovic J also emphasised that matters involving cashback arrangements raise a strong need for general deterrence as the conduct involved is deceptive and designed to give the impression of compliance with the law, whilst in reality it involves a serious instance of non-compliance.

In terms of mitigating factors, the court noted that Easy Vaping had admitted to the contraventions and had taken corrective steps in repaying Mr Hong. In rejecting the submission advanced by Ms and Mr Chan that they were unsophisticated small business operators, Obradovic J noted that the size and financial circumstances of a business do not excuse their breaches of workplace laws and an employers’ obligations to workers cannot be avoided or abrogated.

In finding a need for both specific and general deterrence the court ultimately ordered the following penalties be paid:

 

  1. The first respondent, Easy Vaping, a penalty of $31,500 being 50% of the maximum penalty with a 15% discount for admissions, totalling $26,775.
  2. The second respondent, Ms Chan, a penalty of $6,300 being 50% of the maximum penalty with a 15% discount for admissions, totalling $5,355.
  3. The third respondent, Mr Chan, a penalty of $6,300 being 50% of the maximum penalty with a 15% discount for admissions, totalling $5,355.

Lessons for employers 

There are limited circumstances in which an employer can require an employee to spend their own money or pay back money to the employer. These circumstances will be entirely dependent on the context in which the request by the employer is made, but it is important to note that where undue influence, duress or coercion is used by the employer the request will not be reasonable. 

This case also serves as a salient reminder of the ramifications of contravening workplace laws like the Fair Work Act. As discussed above, those involved in the contraventions are often treated in the same way as the employer who contravened the civil remedy provision. This means that if you are personally responsible for contraventions of workplace laws, the court may impose a pecuniary penalty on you personally in addition to the penalty imposed on the business.  

Need further help? 

If you are an employer and require assistance in determining whether a requirement to spend or payback money would contravene workplace laws please contact EI Legal at: info@eilegal.com.au

SUBSCRIBE TO OUR NEWSLETTER