The first racial discrimination prosecution from the Fair Work Ombudsman

The Fair Work Ombudsman (FWO) has persuaded the Federal Circuit Court (FCC) in its first racial discrimination prosecution under Part 3-1 of the Fair Work Act 2009 (Cth) (FW Act), that a Tasmanian hotel's underpayment of two migrant employees was deliberate, exploitative, and discriminatory.

In the decision, the FCC awarded penalties of $176,005 against Yenida Pty Ltd and $35,099 against its director and secretary, Chang Yen Chang, as an accessory to the company's contraventions of the FW Act (together, Respondents).

Key ingredients

The case concerned a married couple of Chinese descent from Malaysia, Mr Kien Hoong Loh and Ms Kah Yoon Low.

Mr Loh worked for almost seven years at the Scamander Beach Resort Hotel, operated by Yenida, in the role of head chef. Mr Loh worked mainly under a section 457 visa, until obtaining permanent residency in Australia. Ms Low regularly worked alongside her husband in the kitchen without pay, until Yenida employed her casually for several months. The couple lived at the hotel where they worked.

Mr Loh resigned from his employment in April 2014 after a disagreement with the hotelier, Mr Chang. Mr Loh and Ms Low then complained to the FWO.

Underpayment and record keeping failures

In 2014, the FWO commenced an investigation into the hotel's employment practices and discovered a number of compliance issues in breach of the Hospitality Industry (General) Award 2010 (Hospitality Award) and FW Act and Regulations, including underpayments and record keeping failures. These issues extended beyond Mr Loh and Ms Low to a number of other employees.

Case against the hotel and its director

When proceedings were brought by FWO in 2015, the Respondents admitted underpayment and record keeping contraventions in relation to all relevant employees.

The main issue became the FWO's allegation that the Respondents had breached section 351 of the FW Act by unlawfully discriminating against Mr Loh and Ms Low because of their Malaysian nationality and Chinese heritage. In essence, the FWO alleged that while many of the staff were underpaid, Mr Loh and Ms Low had been singled-out by the Respondents for particularly poor treatment, requiring them to work longer hours than everybody else with insufficient pay and scant records, because of their Malaysian nationality and Chinese race. The Respondents denied these allegations.

Discrimination and adverse action

In deciding whether 'adverse action' had been taken, the FCC looked at the meaning of 'discrimination' in the context of the FW Act. Having reviewed the authorities, he concluded that 'discrimination' in this context means 'less favourable treatment'. The FCC also concluded that discrimination must be deliberate. In other words, it requires an intention to treat a person less favourably.

The FCC found that the Respondents had discriminated between Mr Loh and other employees by failing to pay him penalty rates, not recording his hours and requiring him to work six days per week. Similarly, the FCC found that the Respondents had discriminated against Ms Low (compared to other employees), by not paying her at all for a period of time. In both cases, the Respondent's Caucasian employees received different (more favourable) treatment.

The FCC also found that the Respondents had taken adverse action by injuring Mr Loh and Ms Low in their employment, by failing to pay appropriate Hospitality Award rates.

Reasons for the conduct were inconsistent, not credible, and unconvincing

Having established the adverse action, the onus shifted to the Respondents to prove that the conduct was 'because of' the employees' race or national extraction. The FCC reiterated that the adverse action would constitute a breach of the FW Act, unless he was satisfied that Mr Loh and Ms Low's race or national extraction was not a 'substantial and operative' reason for their less favourable treatment.

The Respondents sought to explain-away the discrimination on the following grounds.

• Mr Chang misunderstood the application of the Hospitality Award (including because Mr Loh was a 457 visa holder).
• The previous chef used to work more than five days per week.
• The nature of Mr Loh's position as head chef and that fact he lived at the hotel.
• The nature of Ms Low's relationship with Mr Loh and the fact she lived at the hotel.
• There was no need for Ms Low's position and that it was created out of goodwill.
• Ms Low was treated similarly to other casual employees.

The FCC did not accept these alternative explanations. Fundamentally, the FCC did not believe Mr Chang, whose evidence he viewed as inconsistent, not credible, and unconvincing. In reaching this view, the FCC found Mr Chang:

• Referred to Mr Loh and Ms Low as 'family' to put pressure on them to work hard for him
• Was aware that he was not meeting Mr Loh and Ms Low's Hospitality Award entitlements
• Deliberately recruited employees from Malaysia because he knew they would accept a six day week

The FCC held that the Respondents had failed to discharge their onus and that the FWO was therefore successful in establishing that the adverse action taken was discriminatory in nature.

Accessorial liability

In order to prove Mr Chang was an accessory under section 550 of the FW Act, the FWO needed to establish Mr Chang was knowingly concerned in Yenida’s contraventions, that he had knowledge of each essential element of the contravention, and that Mr Loh’s and Ms Low’s national extraction and race were among the substantial and operative reasons for Mr Chang’s decision to take adverse action against them. This was relatively straightforward to prove given Mr Chang had been responsible for Yenida's decisions. The FCC found that he had the requisite knowledge and therefore should be held accessorily liable for Yenida's contraventions.

In total, the FCC awarded penalties of $211,104 against the Respondents. This was in addition to underpayments which had been accepted by the Respondents and which they had entered into a payment plan to rectify.

Lessons for employers

The FWO has consistently shown its willingness to bring actions in order to protect workers which the FWO sees as being particularly vulnerable to employment law contraventions. This decision further demonstrates the FWO's appetite in using all the 'tools' at its disposal to pursue employers who take advantage of employees.

The case also reemphasises the importance of a decision maker's evidence in general protections and discrimination claims. Ultimately, the fact that Mr Chang's evidence was not believed by the FCC was a decisive factor in the outcome of the case.

Finally, employers should be aware that while 'discrimination' has a limited meaning under the FW Act — applying only to intentional unfavourable treatment — this is a departure from anti-discrimination law. Generally, motive and intention are irrelevant under these laws.

¹ Fair Work Ombudsman v Yenida Pty Ltd & Anor [2017] FCCA 2299.