It’s simple: you need to pay your staff – with dollars, not meal deals. Failure to do so could be disastrous for your business, writes Restaurant and Catering.

Many employers are often confronted with business deals too good to be true. Sometimes individuals will approach employers and ask to work on a volunteer basis without payment. These propositions sound attractive, however are costly mistakes under Australia’s employment and workplace relations legislation.

In Nield v Mathieson [2014] FCAFC 19 June 2014 the Full Federal Court rejected arguments from an employer that an employee was a volunteer to the business and was paid in free board and lodging and a packet of cigarettes instead of wages. The Federal Court found that it was an extraordinary  case and awarded back pay to the employee of some $300,000 in wages owed under the Fast Food Industry Award.

This case highlights that what starts out as a mutual arrangement becomes a legal nightmare and potentially a business failure because it is not possible to substitute wages under the Modern Award system.

This case also demonstrates that business owners must ensure that Industrial Award obligations are paid and that mutual agreements do not override entitlements derived from employment legislation. The employee in this case originally commenced work as a shop assistant and then entered into a board and lodging arrangement. However, the employee then had a falling out with the owners and the court found that an employer/employee relationship existed throughout.

The employer argued that there could not be an employer/employee relationship because the volunteer was receiving Centrelink payments from the government. However on appeal the Full Federal Court found that:

“We say nothing about the lawfulness of the dealings between [the assistant] and Centrelink. It is a matter for Centrelink to determine whether or not recovery should be effected and, if so, how. We do not consider that [her] claim for and receipt of widow’s allowance can have implications for the existence of a contract of employment after May 2006.”

Under the Hospitality Industry (General) Award, a specific clause allows deductions of weekly amounts to be made from employee wages where the employer provides board and lodging. However, these provisions need to be carefully worded into employment contracts to ensure they do not breach the weekly minimum wages that must be paid to employees.

In other cases recently heard before the Federal Court, sham contracting arrangements whereby employees are disguised as contractors with Australian Business Numbers have also warranted significant penalties.

In 2013 the Fair Work Ombudsman commissioned a report titled The Nature, Prevalence and Regulation of Unpaid Work Experience, Internships and Trial Periods in Australia: Experience or Exploitation? by the University of Adelaide which found:

“In summary, the effect of the Fair Work Act is that if a person is engaged to work as an employee, it is necessarily unlawful not to pay them for that work.”

Lessons from these cases require that business owners seek advice before entering into longstanding contractual arrangements. Otherwise, in the long term it may cost you more than just your business.

This article was written by the workplace relations team at Restaurant & Catering Australia. Contact 1300 722 878