Pizza Hut Owner to Face Legal Action over Alleged Sham Contracting Practices

Friday 16 June 2017 @ 8.56 a.m. | Legal Research | Trade & Commerce

The Fair Work Ombudsman (the Ombudsman), has recently revealed in a Fairwork Media Release, that it has commenced legal action in the Federal Circuit Court against a Pizza Hut franchisee on the Gold Coast for alleged sham contracting activity and underpaying a delivery driver more than $6,000.

The Ombudsman has commenced legal action against Gold Coast man Dong Zhao, who owns and operates the Pizza Hut franchise outlet at Upper Coomera. Zhao’s company Skyter Trade Pty Ltd, is also facing legal action.

Background and the Allegations

Fair Work Ombudsman Inspectors investigated Zhao’s Pizza Hut outlet as part of an activity that involved audits of more than 30 Pizza Hut outlets and identified widespread non-compliance in the franchise network.

It is alleged inspectors found that Zhao had asked a delivery driver he engaged at his Pizza Hut outlet to provide an Australian Business Number (ABN) and then treated him as an independent contractor between November 2015 and May 2016. The Ombudsman alleges the driver ought to have been engaged as an employee and the arrangements amount to “sham contracting”.

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. It is alleged that in an interview with a Fair Work Inspector, Zhao admitted that he paid the employee a flat rate of pay of no more than $16 per 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 allegedly also underpaid a per-delivery entitlement, superannuation and a uniform allowance. The driver has now been back-paid in full.

It is also alleged that Mr Zhao and his company failed to comply with a Notice to Produce employment records and contravened pay slip and record-keeping laws, including by providing false records to the Ombudsman during its investigation.

Comment from the Ombudsman

Fair Work Ombudsman Natalie James says legal action has been commenced because sham contracting is serious conduct that deprives employees of basic minimum wages and protections. Skyter Trade Pty Ltd faces penalties of up to $54,000 per contravention and Mr Zhao faces penalties of up to $10,800 per contravention.

The Ombudsman is also seeking orders that Mr Zhao’s company 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.

Previous Investigations by the Ombudsman

The Ombudsman’s activity focused on Pizza Hut outlets and involved audits of 34 franchised Pizza Hut stores, of which 32 engaged delivery drivers. Non-compliance was identified in at least 24 stores and seven franchisees had mis-classified their delivery drivers as contractors when they were in fact employees.

As a result of the recent investigations, three Pizza Hut franchisees have entered into Enforceable Undertakings with the Ombudsman and 11 were issued with Compliance Notices. The Ombudsman is continuing to finalise investigations into a number of other franchisees and further enforcement action is possible.

Ms James raised concerns about the impact that fierce competition in the pizza sector, which had been dubbed the “pizza wars”, was having on the pay packets of vulnerable workers employed in the sector:

“We are also in discussions with Pizza Hut about what it might do to address what appears to be widespread non-compliance by its franchisees. The evidence has been in front of Pizza Hut since January this year [2017]. Unfortunately the franchise is yet to make any commitment to address what appears to be a systemic problem in its network.”

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products. Nothing on this website should be construed as legal advice and does not substitute for the advice of competent legal counsel.


Pizza Hut franchisee faces Court over alleged sham contracting, underpayment – Fairwork Media Release

Related Articles: