Hospitality

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

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Emma Koehn

Emma Koehn is a former senior journalist at SmartCompany.

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