Pizza Hut franchisee caught in sham contracting scheme

A Pizza Hut franchisee on the Gold Coast has been penalised a total of $216,700 after exploiting an Indian delivery driver under a sham contract and using false records to try to cover it up.

Dong Zhao, who owns and operates the Pizza Hut franchise, has been penalised $36,700 and his company Skyter Trade Pty Ltd has been penalised an additional $180,000.

Judge Michael Jarrett imposed the penalties after Zhao and his company admitted contravening sham contracting laws when they misrepresented to a delivery driver that he was an independent contractor, not an employee. The driver, an Indian national aged in his 20s, was in Australia as a dependent on his wife’s international student visa at the time. Zhao asked the delivery driver to provide an Australian Business Number (ABN) and then treated him as an independent contractor between November 2015 and May 2016, paying him a flat rate of no more than $16 an hour.

However, as an employee rather than an independent contractor, the worker was entitled to receive at least $20.36 for ordinary hours and up to $40.72 for overtime and public holiday work under the Pizza Hut enterprise agreement that applied to the business. He was also underpaid a per-delivery entitlement, superannuation and a uniform allowance. The driver has been back-paid in full.

Judge Jarrett found that the sham contracting contravention was “serious” and “deliberate” conduct that occurred despite Zhao having received clear advice from the franchisor not to engage in such arrangements. The judge also said the underpayment amounts were significant to the driver.

Fair Work Ombudsman inspectors investigated Zhao’s Pizza Hut outlet in 2016 as part of an activity that involved audits of more than 30 Pizza Hut outlets and identified widespread non-compliance in the franchise network. Zhao and his company also breached workplace laws during the investigation by failing to comply with a Notice to Produce employment records and providing false records to the Fair Work Ombudsman during its investigation.

Judge Jarrett found that Zhao had actively sought to mislead the Fair Work Ombudsman.

“The failure to keep proper records and to provide pay slips to employees is an insidious practice that is only aggravated by the creation and provision of false documents designed to conceal the employer’s wrong doing,” Judge Jarrett said. “Employers and those that control them ought to be under no misapprehension that the creation and provision of false records is a serious matter and will be treated seriously by the Court.”

The judge also ordered Zhao and his company to commission retrospective and future audits of pay practices at his Pizza Hut outlet and rectify any underpayments discovered, and to display a workplace notice containing information about minimum lawful pay rates and Fair Work Ombudsman contact details.

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