Justin Hemmes has lost a key part of his defence against a class action that could force his Merivale empire to back pay workers as much as $129 million.
The Federal Court has ruled the hospitality giant’s WorkChoices agreement that short-changed workers penalty rates and overtime pay for a decade was not validly approved in the first place, meaning that it is likely the more beneficial industry award covered workers at all times.
Merivale owner Justin Hemmes may face a $100 million plus back pay bill. Louise Kennerley
Merivale will now argue that the court should exercise its discretion to rule the award did not retrospectively apply or to refuse to make back pay orders, which lawyers say is uncharted territory.
The company has said the decision is “extremely concerning” as it meant that its agreement, even though it passed the law’s then-fairness test, was now in question because of a regulator error.
As part of its defence, Merivale has argued that it made intentional decisions to grow its business, take on debt and engage staff on particular roster patterns by relying on the agreement and its lack of award minimum rates.
The class action, brought by Adero Law, applies to up to 14,000 workers employed from 2013 to 2019, the six-year limit that underpayment legislation can apply.
Merivale’s WorkChoices agreement gave it a significant competitive advantage in the industry and the company was forced to reconsider the viability of its business practices after the deal was terminated by the union in 2019.
However, Adero uncovered documents that showed the regulator at the time, the Workplace Authority, wrongfully approved the agreement in what it said were “curious” and “troubling” circumstances.
The documents show the regulator initially rejected Merivale’s agreement in 2009 because the deal failed to pass the “fairness test”.
But when Merivale’s lawyers objected and threatened a court challenge, Workplace Authority acting director Penny Weir moved to “rescind” the decision, without appeal, based on unspecified “administrative issues” experienced by Merivale.
At the time the class action was filed, a Merivale spokeswoman said it “firmly believes there is no basis for any action” and that external parties had independently assessed its compliance. Even if the regulator was wrong, it could not be Merivale’s fault, she said.
The company’s lawyers in court argued that the approval was valid and there was no good reason to treat the statutory scheme as entirely inflexible, admitting no possibility of mistakes.
However, Justice Thomas Thawley said the concept of an agreement “ceasing to operate” once it failed the fairness test was central to the legislation at the time, which also specifically entitled staff to compensation for the period they were subject to an invalid agreement.
“If it were intended that fairness test decisions could be revoked and remade one would expect that to have been dealt with expressly in the legislation given the highly regulated structure shown in Division 5A,” he said.
He said in his view, the acting Workplace Authority’s decision to rescind the decision that the agreement failed the fairness test and then approve a varied agreement was “beyond power”.
However, he stressed “the consequences of that in terms of whether the Merivale agreement or the award applied and the relief this court would grant at a final hearing … remain to be determined”.
Adero principal Rory Markham said the decision was a major win because it held Merivale never had power to get approval of its agreement and “as such there was no legal basis to underpay workers their award entitlements”.
He said Merivale would have to argue for new ground that the court use its discretion not to order back pay.
“There is no precedent ever that has allowed an employer to escape paying safety net wages to workers.”
He said there was also a high bar to argue an agreement “outside of power” could still deprive workers of the safety net and that it would be a “PR disaster” for Merivale to argue that its business model was reliant on below-award wages.
“An officer from Merivale, who can only be part of the Hemmes family in truth, is in all likelihood going to have come along and give evidence that they made very forensic business decisions based on having cheaper labour than their competitors.”
A Merivale spokeswoman said it had “relied on the regulator’s decision to approve the collective agreement and it complied with the collective agreement on this basis and structured its operations accordingly”.
“Employers should be able to rely on decisions made by regulators regarding the validity of their enterprise agreements when structuring their business operations and paying their employees.”
“Such errors can have a significant impact on these businesses and their employees,” she said.
She said Merivale will continue to defend this class action until the final hearing and “denied liability in relation to the claims in the proceedings”.