Fair Work Accuses Start-up Company of Underpayments and Running Unlawful Intern Scheme
Tuesday 6 June 2017 @ 10.13 a.m. | Industrial Law | Legal Research | Trade & Commerce
A fashion industry start-up that appeared on the reality TV show Shark Tank, is reportedly facing Court action for allegedly running an unlawful unpaid internship program and underpaying three workers more than $40,000.
The Fair Work Ombudsman (the Ombudsman) has commenced legal action in the Federal Circuit Court against Her Fashion Box Pty Ltd (the company) and its sole director and majority shareholder, Kathleen Enyd Purkis.
Her Fashion Box, which is based in Sydney, sells on-line subscribers “fashion boxes” containing fashion accessories and beauty products.
Background
Her Fashion Box rose to prominence after securing a $200,000 investment in season two of the reality TV show Shark Tank in mid-2016, with two judges partnering for a joint 16 percent equity stake.
However, soon after the Shark Tank episode aired, the company faced mounting claims of overcharged accounts and poor customer service, with shipments of the company’s clothing and beauty subscription boxes allegedly never reaching customers.
In October 2016, the NSW Office of Fair Trading issued a public warning against the business, claiming it had similarly received multiple complaints about orders that had not shipped, as well as claims the business did not respond to requests to cancel or refund purchases.
The Allegations
The Ombudsman alleges the company underpaid three employees a total of $40,543 for various periods of work between 2013 and 2015. It is alleged the three employees, aged in their mid-20s, were variously underpaid their minimum hourly rates, overtime, public holiday pay and annual leave entitlements.
One employee, a graphic designer who had completed a university degree, allegedly worked two-days per week for almost six months without pay under a purported “unpaid internship” before receiving a one-off payment of just $1,000. She was allegedly underpaid $6,913.
The Ombudsman alleges she was in fact engaged as an employee and performing productive work, and therefore entitled to be paid minimum award rates and entitlements.
Another graphic designer engaged by the company was allegedly underpaid a total of $15,511 over a period of two years of full-time work as a result of underpayment of his minimum award entitlements. The third employee, engaged on a full-time basis as a brand partnerships manager, was allegedly underpaid a total of $18,119 over a 12-month period.
The Ombudsman also alleged that Her Fashion Box further contravened the law by failing to comply with four Notices to Produce documents or records issued by Fair Work inspectors.
Legal action and possible penalties
Fair Work Ombudsman Natalie James says legal action has been commenced because of the lack of co-operation with inspectors and the significant amounts involved for young employees.
Her Fashion Box faces maximum penalties of up to $51,000 per contravention and Purkis faces penalties of up to $10,200 per contravention. The Ombudsman is also seeking Court Orders requiring the company and Purkis to back-pay the employees in full as they have only been partially paid back.
An injunction restraining Her Fashion Box and Purkis from underpaying workers in future is also being sought. If the injunction is granted, the company and Purkis could face contempt of court proceedings for any further underpayment contraventions proven in court.
Comment from the Ombudsman
Ms James said her agency had received a number of requests for assistance from Her Fashion Box workers since 2015 with employees claiming they had been underpaid due to allegedly unlawful “internship” arrangements:
“Unpaid placements or ‘internships’ are legitimate in certain cases – for example, where they are part of a vocational placement related to a course of study. The law prohibits the exploitation of workers by characterising them as ‘interns’ or as doing ‘work experience’ when they are fulfilling the role of an employee. Such workers must be paid minimum employee entitlements. Legitimate internship and work placements can be a genuine way for people to further their learning or gain skills that assist in finding stable employment, but only if these arrangements are entered into lawfully in accordance with an approved program. Employers cannot simply choose to label an employee as an ‘intern’ in order to avoid paying their staff according to their lawful entitlements.”
Previous action by the Ombudsman
The litigation comes after a Fair Work Ombudsman litigation in 2016 resulted in the Federal Circuit Court imposing $272,850 in penalties against Sydney-based media company AIMG BQ Pty Ltd to send a “serious message” not to disguise employment relationships as unpaid internships.
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Sources:
‘Shark Tank’ start-up accused of running unlawful intern scheme – theaustralian.com.au
Shark Tank-backed Her Fashion Box to face court over allegations of staff underpayments, unpaid internships – smartcompany.com.au
Reality TV contestant faces Court over alleged unpaid internship, underpayments – fairwork.gov.au
