Pizza Hut franchisee owner faces Court for alleged sham contracting

A Pizza Hut franchisee is facing Court for alleged sham contracting activity and underpaying an employee more than $6000.

The Fair Work Ombudsman has commenced legal action in the Federal Circuit Court against Dong Zhao, who owns and operates the Pizza Hut franchisee outlet at Upper Coomera on the Gold Coast. Zhao’s company Skyter Trade Pty Ltd is also facing Court.

FWO inspectors investigated Zhao’s outlet as part of an activity that involved audits of more than 30 Pizza Hut outlets.

In January this year, it was found that three quarters of audited Pizza Hut outlets were failing to comply with workplace laws, according to a FWO Activity report. Of the 34 franchisees audited by the Ombudsman, 24 were found to be breaching workplace laws while only two were meeting all of their legal obligations to delivery staff.

In this case, it is alleged inspectors found that Zhao had asked a delivery driver 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 FWO alleges the driver should have been engaged as an employee and the arrangements amount to ‘sham contracting’.

The driver was an Indian national aged in his 20s and 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 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 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 FWO during its investigation.

Fair Work Ombudsman Natalie James said 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 Zhao faces penalties of up to $10,800 per contravention.

The FWO is also seeking orders that 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 FWO contact details.

The matter is listed for a directions hearing in the Federal Circuit Court in Brisbane on August 7.

Moreover, the FWO is continuing to finalise investigations into a number of other franchisees and further enforcement action is possible.

In a recent speech, 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," said James.

The evidence has been in front of Pizza Hut since January this year. Unfortunately the franchise is yet to make any commitment to address what appears to be a systemic problem in its network.”