Don’t offer staff free lunch: Underpayment claims at Melbourne cafe Barry prompt legal warning for SMEs

Emma Koehn /

Legal experts have warned businesses to take care when offering staff free incentives like coffee or lunch, especially if these are connected to staff salaries, after a Melbourne cafe was hit with serious underpayment claims from staff this week.

Staff at Barry cafe in the Melbourne suburb of Northcote have claimed they had shifts cancelled after querying their pay rates last week, reports the ABC. The workers said they were paid $18 an hour for all shifts, whereas the casual rate for their roles should have been $24.41 on weekdays and $29.30 on weekends.

The staff say they requested a meeting with the cafe’s owners to discuss this, but were refused, and two workers later had shifts cancelled. The workers provided the ABC an email response from the employer, which said the workers had agreed on the pay rates and “on top of that you had free meals and free unlimited coffees”.

The Fair Work Ombudsman has confirmed to the ABC it is investigating the claims, while the business owner has said he was “under the impression” $18 was the minimum rate, and he would correct this if there had been a mistake.

SmartCompany contacted the business this morning but did not receive a response prior to publication.

However, the case has prompted legal experts to warn that they expect even more scrutiny on hospitality payment rates in the coming year. In this environment it’s critical that businesses avoid linking base wages to other incentives like food or drink.

“Those kinds of offsets are simply not acceptable,” workplace lawyer Peter Vitale tells SmartCompany.

He says he has heard anecdotes of businesses striking pay agreements based on things like food. However, he warns employers than even if all staff agree to the deal, if the pay rate is less than the award wage, the employer will be in a tough position if there is any dispute down the line.

“The employer wouldn’t have a leg to stand on. The High Court has said for at least 100 years that you can’t contract out of an award,” he says.

While the claims in this case have not been formally reviewed, employers should generally mark any extras associated with a salary as bonuses or incentives, rather than communicating them in the context of a basic salary.

“If they are extra incentives, then that is just what they are. It’s not difficult,” says Vitale.

“Many other” claims could be aired with new scrutiny

Offering food or beverages to workers is a kind of extension of “tipping culture”, says managing director of law firm McDonald Murholme, Alan McDonald.

“Often employees take certain benefits like this but it’s really only an extension of tipping culture, where like in the US individuals can take individual tips — but it should never be considered part of the actual salary,” he says.

McDonald says businesses in the hospitality sector must pay attention to cases like this, however, because Australian food businesses are under significant pressure and a number of high-profile cases relating to staff payments have been aired over the past year.

These include celebrity chef George Calombaris repaying workers $2.6 million, and a former bartender at Melbourne eatery Chin Chin explaining to the media why she was taking the business to the Melbourne Magistrates’ Court claiming $9,000 in underpayments. 

McDonald observes that employers in the hospitality sector are seeing their profit margins crushed, while the ATO appears to be putting more pressure on small businesses over tax debts. These issues combined could be leading to more staff underpayments across the sector, but businesses must be wary because they could face penalties if found to be in the wrong.

“Businesses are under a lot of pressure, and I think [aside from wages] the root cause of all of this is the other costs of running a business,” he says.

He says businesses should know that the Fair Work Ombudsman will give them “plenty of scope to resolve these issues” if staff do complain, but he expects more businesses will have a public light shone on them in the coming months over how they pay their staff.

There would be many others out there,” he says. 

NOW READ: Former bartender takes Melbourne restaurant Chin Chin to court claiming $9,000 in underpayments

Emma Koehn

Emma Koehn is SmartCompany's senior journalist.

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  • John Hutchinson

    Anyone with a modicum of economic sense would realize that $24.41/hr for a café worker would be unsustainable without the business charging something like $6.00 for a Coffee, in which case the Law of Diminishing returns cuts in.

    • Angela Bichler

      Yes, agreed, so then don’t run a cafe. Go into another line of business that may be more profitable! How can people live, pay off their HELP debt or even buy a home on $18/hr? You need to look at it from the employee’s perspective as well. Many students/young people get taken advantage of….. complain and you don’t get a shift. So many people go into business not understanding the profit margin of the industry they are planning to operate in. There is often no business planning which leads to many small business operators earning a tiny wage for themselves. So then they try to cut corners and come unstuck like this cafe owner. The law is the law….

      • Kim James

        I wholeheartedly agree, Angela. There’s one area of which I have little sympathy and that’s neglecting legal obligations with respect to your workers. Fair pay, WHS, other, other. This is the base level for anybody to run a business. Way too many practitioners try and evolve into business operations and just ‘tack on’ the supporting structures, especially in the startup age. I’m a new business and spent 6 months conferring with lawyers and contributors – not everybody who has a great idea or concept deserve a to be an owner of a business. People with business savvy and due diligence (and TOTAL employee care) deserve to be owners of businesses. It’s hardly a Unicef matter to tell some people they aren’t currently equipped to be a CEO.

      • John Hutchinson

        You can still run a café, you just can’t employ someone in it.

  • manthropology

    If it was actually a free lunch, it wouldn’t be a problem. The fact that it was a way of manipulating workers into negotiating away their penalty rates means that it was a very costly lunch indeed.

    • Anne Jones

      As they say, there is no sch thing as a free lunch.

  • Anne Jones

    Most small business owners appeared to have zero understanding of their basic legal obligations. It’s not rocket science and so much information is available for free from various government depts and business associations.