Chemist Warehouse $10 Million Underpayment Scandal

KEY TAKE OUTS:

• The Shop Distributive and Allied Employees Association has taken legal action against Chemist Warehouse franchisees for allegedly underpaying nine staff.
• Chemist Warehouse franchisees are facing compensation orders amounting to $10 million nationally due to the staff underpayment charge.
• It is essential that Employers pay correctly and in accordance with the modern award system, as they can face legal repercussions for the underpayment of employees.
• Employers should regularly review modern awards and stay up to date with increased pay rates to avoid underpayment claims.

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Chemist Warehouse and the underpayment of employees

The Shop Distributive and Allied Employees Association (“SDA”) has claimed that Chemist Warehouse franchisees have allegedly underpaid workers at four of its South Australian stores, which are owned by co-founder Jack and Sam Gance and group head Mario Verrocchi.

The union claims that in 2017, workers were not paid in line with their higher duties. Chemist Warehouse stores had directed employees to obtain a Certificate III in community pharmacy to perform higher duties. The work employees were completing was at a level 3 classification, however, Chemist Warehouse stores had failed to pay staff the correct wages in line with this classification. The franchisee has denied these allegations and claims that workers were only promoted to level 2 classifications.

There have been comments by both parties on the present matter. The SDA South Australian secretary made a statement claiming that “Chemist Warehouse knowingly ripped thousands out of the pockets of its employees by directing them to work above their classification level.” Further, commenting that doing so is “exploitation and it’s unlawful” adding that underpayment “isn’t a mistake or an oversight.” Chemist Warehouse itself is yet to comment on the matter, however, a Chemist Warehouse spokeswoman has emphasised that Chemist Warehouse itself is not a party to the proceedings and states that the franchisees “reject the allegation of any underpayment and will defend their position vigorously.”

If the claims by the union are upheld by the court, the ruling would result in compensation claims for up to 1,000 workers across 350 stores. The union states that the average $5,000 payment could amount to $600,000 in South Australia and $10 million nationally. The case will be heard in August. Watch this space for updates following the hearing.

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What is an award?

The Fair Work Act 2009 states what is covered by an award through the Australian Industrial Relations system. Modern awards are legal documents that outline the minimum pay rates and condition of employment. Modern awards provide entitlements such as pay, hour of work, rosters, breaks, allowances, penalty rates and overtime. This will be essential to employees to ensure they have been paid according to their right and will also require an employer to ensure they have staff as required by the award. There are more than 100 industry or occupation awards that cover people who work in Australia. Awards will apply to employers and employees depending on the industry they work in, and the type of job worked. An employer can be covered by more than one award depending on the jobs the employees do.

In some circumstances, an employee may not be under an award nor be covered by a registered agreement. The Fair Work Commission’s Minimum Wage Order will then determine the minimum pay rate in accordance with the national minimum wage.

Underpayment

Employees are entitled to be paid their minimum pay rates and entitlements. Entitlements include overtime rates, penalty rates, payment for annual leave or loading and allowances. Underpayment can occur if the employer is applying the incorrect award, is not paying the minimum wage according to the award or has under-classified an employee’s role, which results in less payment than what the employee is legally entitled to. When an employer fails to meet these obligations, it is considered an underpayment. If an employee feels as if they have been underpaid, then they are entitled to bring an action against their employer to recover the difference between the payments they should have received and what they have in fact received.

It is important that employers are paying employees correctly and they understand the risk of underpayment. Employers can do so by ensuring employees are employed under the correct award and are classified under the correct level for the work they are qualified for and hired to do. Employers must also ensure that they stay up to date with any relevant changes to the award such as the required pay rate, entitlements to loadings or allowances, and any relevant training that is required to be provided to its staff.

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Consequences of underpayment

The Fair Work Act 2009 provides that a person can be found liable for underpayments if they:

• Are aware of the underpayment and did not take the steps to prevent it.
• Did not make an effort to ensure there were no issues and that the rate of pay was complying with the award.
• Are a franchisor and did not take reasonable steps to ensure employees were paid correctly.

It is also important for employers to be aware that employees can take legal action against their employer to recover underpaid wages for a period of six years from the date of the underpayment event (when the breach occurred). For claims less than $20,000, employees can make an application to the Fair Work Small Claims Division of the Federal Circuit Court or state or territory magistrates and local courts. If the employee is successful, the court may order compensation to the employee as well as impose a fine on the employer. The court may also order interest on the underpayments, which amount is to be determined by the court.

How we can help

If you are an employer and are not sure whether you are paying your staff correctly, the Coutts Employment team can assist you to review your current pay rates in comparison to the most recent awards.

If you are an employee and you believe you are being underpaid by your employer and there has been a breach of your award or any other queries regarding your rights, the Coutts Employment team can also provide assistance and recommend any options available to you.

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