Pizza Hut Franchisee fined $216,700

September 10, 2018

Following a successful prosecution by the Fair Work Ombudsman, Dong Zhao the owner and operator of a Pizza Hut franchise on the Gold Coast along with his company Skyter Trade Pty Ltd has received penalties of $216,700.

Mr Zhao was found guilty of paying his delivery driver as an independent contractor instead of a Pizza Hut employee. Mr Zhao was paying this driver a flat fee of $16.00 per hour which below the legal minimum entitlements of $20.36 per hour and up to $40.72 per hour for overtime and public holidays work as per Pizza Hut’s enterprise agreement.

Furthermore, the driver missed out on other entitlements including superannuation, uniform allowance and per-delivery rate. According to the evidence given at trial, the driver was in fact “paying all the running costs for his car that he used for all deliveries he performed for the respondents, as well as paying for replacement tyres, registration and insurance.“[1]

As a result Judge Jarrett noted in his judgment that the Mr Zhao’s conduct was “deliberate” and “serious”[2] given that the franchisor had given him explicit instructions not to use such arrangements.

Additionally, it was found that Mr Zhao had also deceived the Fair Work Ombudsman whilst an audit was taking place of 34 Pizza hut franchisees in 2016 by falsifying documents designed to conceal the employer’s wrong doing.

Ombudsman Natalie James has stated that sham contracting is a priority of the FWO not just because of the direct impact on individual workers, but those who adopt the sham contract are in fact gaining an unfair competitive advantage as they are depriving their workers of the minimum employment conditions and protections.  Pizza Hut itself may also face charges under changes to the Fair Work Act that came into effect last year, which means now franchisors can be held liable for employment breaches by its franchisees.

Under the Fair Work Act, employers can face up to $63,000 for companies and up to $12,600 for individuals per contravention for sham contracting. Also a reverse onus of proof has been applied to those who do not meet payslip and record keeping obligations without a reasonable excuse.

Legal action has also now been issued against Foodora, a food delivery company accusing the company for sham contracting and underpayment of at least three of its delivery drivers. The results of this matter will have major consequences for companies such as Uber Eats that rely solely on the use of contract workers.

If you are a company who engages independent contractors, please be mindful of your legal obligations so that you do not become liable for sham contracting. If you are unsure of the factors that might distinguish an employee from a contractor, please contact our employment law team.

[1] Fair Work Ombudsman v Skyter Trade Pty Ltd & Anor [2018] FCCA 1483.

[2] Ibid.

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