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In a ground-breaking decision, the Federal Circuit Court has found an employer’s underpayment of two employees (a chef and kitchen hand) working in Australia on 457 visas was based on their race and nationality, contravening the racial discrimination provisions of the Fair Work Act 2009 (Cth) (Act).

The successful prosecution of Yenida Pty Ltd (Yenida) and its sole director, Chang Yen Chang (Mr Chang), is the first time the Fair Work Ombudsman (FWO) has litigated a racial discrimination case.

The decision is significant for employers because, by alleging that Yenida took the adverse action of underpaying employees based on their race, the FWO exposed Yenida and Mr Chang to potentially unlimited damages, rather than only the civil penalties proscribed by the Act for underpayment breaches.

Background

Judge Barbara Baker heard that Mr Chang underpaid the two employees, because of their Malaysian nationality and Chinese race, by paying flat rates for a six-day, 51 hour working week and failing to apply penalty rates, casual loadings or entitlements for public holidays, weekend and evening work.

The Court also heard that Mr Chang repeatedly referred to the two employees as ‘family’, which the employees believed was due to a Malaysian and Chinese culture of working hard for and helping out one’s family.

In finding that Yenida and Mr Chang had taken adverse action, Judge Baker distinguished between the race-based underpayment of the two kitchen employees from underpayments involving 15 Caucasian Australian casuals.  Her Honour stated that these other casuals ‘worked less than six days on average and were underpaid due to the incorrect rates being applied, not because of a complete failure to pay the rates’.

Outcome

Judge Baker found Yenida breached section 531 of the Act by taking adverse action against the chef and kitchen hand because of their national extraction and race.  As Mr Chang, Yenida’s sole director, had personal knowledge of each contravention by Yenida, he was held personally liable as a person knowingly concerned in Yenida’s contraventions pursuant to section 550 of the Act.

The FWO now has four weeks to make submissions on the form of declarations and penalties, with another four weeks for Yenida and Mr Chang to file responses, prior to a hearing on 8 December 2017.

The decision serves as a powerful reminder of the FWO’s willingness to pursue employers (and others involved) in instances of underpayment – particularly involving foreign or vulnerable workers.