Are we all prepared to pay the price for proper wages?

23 September 2018

As a boss, Jackson Davie could be described as retro – a bit like the obscure 1960s rock that plays in his cafe, Mavis the Grocer, in Abbotsford in Melbourne’s inner north.

His approach to business harks back to an Australia where workers could expect and demand to be paid according to the laws of the land.

Mr Davie pays his workers award wages, including penalties.

Jackson Davie (left), the owner of cafe Mavis the Grocer, with one of his employees, Marc Dean.

Photo: Justin McManus

“I don’t want to get stung owing back pay and not have the money to cover it,’’ says the 38-year-old, who has been involved in restaurants, clubs, pubs and cafes since he was 14.

“I’d rather just do things properly and sleep well at night, knowing that the money I’ve got is mine.”

That can make Mr Davie appear unusual in hospitality.

From tiny corner cafes to the largest, high-end restaurants, exploitation including underpaymentand dangerously long hours is rife and, arguably, at unprecedented levels.

A 2015 report by watchdog the Fair Work Ombudsman found about half of all restaurants and cafes audited did not pay legal rates.

And in July this year the Ombudsman reported that 81 per cent of businesses inspected in Victoria Street, Richmond, did not comply with workplace laws.

After recent Fairfax Media revelations about his high-end Rockpool eateries underpaying workers, frontman Neil Perry said the group had made changes, making it one of the “very few, if any” restaurants that comply with workplace laws.

It was a revealing admission from an industry leader about the normality of flouting employment laws and ripping off workers who are among the lowest paid in the country.

In a fragmented industry largely unencumbered by regulators or unions, there appears little fear of being caught out doing the wrong thing. That makes it difficult for a cafe like Davie’s to compete.

Everyone agrees the status quo is not tenable. But tackling the problem will come at a cost, including the possible closure of some non-compliant businesses.

Should low-paid workers be paid even less? Or is it time for Australian consumers to accept they need to pay a little more for their coffee, pasta, and sushi?

The reality of the industry

Australia’s food scene is thriving, internationally renowned and unrecognisable from times past when an Anglo-dominated society viewed restaurants, wine and even coffee as exotic novelties.

Hospitality employs 830,000 people and has grown by a third in a decade thanks to households spending, on average, $94 a week eating out.

The media has glamorised the food and restaurant business, making household names of figures such as Perry, George Calombaris, and Shannon Bennett, and Australian consumers have grown accustomed to quality food, wine and coffee – arguably the best in the world – at relatively low prices.

Beyond the glitz, however, working conditions in restaurants and cafes, including those linked to celebrity chefs, have been exposed as anything but alluring. It is a notoriously precarious industry for employers and workers alike – especially small, one-off cafes – and making a dollar is not easy.

Food services has the highest failure rate of all industry sectors, with only slightly more than half of businesses still open after four years. Bureau of Statistics data shows profit margins at a low 5 per cent and falling.

It’s also a highly fragmented industry made all the more so by being relatively easy and inexpensive to get into.

“It’s the free market at work,” says Juliana Payne, chief executive of industry lobby group Restaurant & Catering Australia. “You get your liquor licence, you get your lease, you do your fitout, hire a chef and buy a coffee machine and you’re a restaurant.”

She says it is possible for restaurants and cafes to be profitable and thrive, if they “do their homework and business planning”, including for labour costs.

Too many don’t do such planning.

The restaurant and cafe sectors are resolutely independent, with Australian consumers inclined to support distinctive local outlets. We’re especially and famously particular about coffee, for instance.

US chain Starbucks tried its luck here but couldn’t compete, while Gloria Jeans, the Coffee Club and others are relatively small. No one company has more than 5 per cent of the cafe market.

In such a competitive climate, cost minimisation tends to be a focus. Rents are often substantial, especially in inner-city locations, and power prices too have risen dramatically thanks to the national political imbroglio over energy policy.

But if you don’t pay your rent, you get evicted. If you don’t pay the power bill, the lights go out. If you don’t pay proper wages? You’ll probably get away with it.

Wages and conditions are the easiest option for cost cutting.

The true cost of a coffee

So what would happen if all hospitality businesses suddenly found themselves paying full whack: award wages for casuals of $24.34 an hour during the week, and more than $30 on Sundays?

In short, food, wine and coffee at many cafes, restaurants and pubs would likely become more expensive. Consumers would need to shoulder more of the burden of paying award wages.

Industry insiders say a “rule of thumb” is that costs for cafes and restaurants tend to comprise one-third wages, one-third food and beverages and one-third overheads including rent and energy.

Australian Taxation Office data indicates the wages component is slightly lower, at about one-quarter of turnover.

There is no comprehensive research on the economic or price impact of widespread underpayment, or on what would happen if prices were to suddenly reflect the award.

But there is no doubt that prices would need to rise. Meals would likely increase in price by a few dollars per serve. And to maintain the shop’s profit margin, a standard coffee may need to rise from $4 to more like $4.50.

Heat and kitchens

Long hours and poor pay are not new in hospitality.

“I don’t think people know what chefs go through to give people their eggs in the morning,’’ says Mavis’ Jackson Davie. “Doing 60 hours a week in a kitchen, a space not much bigger than a prison cell, where it’s hot and sweaty and tempers can flare.”

Jackson Davie in his cafe.

Photo: Justin McManus

Mr Davie paints a picture not unlike the nightmare Parisian kitchens of George Orwell’s Depression-era memoir Down and Out in Paris and London.

Orwell complained of working 17 hours a day “almost without a break”. Such hours are not uncommon in Australia 85 years later.

Many chefs still talk of a military-like, hierarchical kitchen culture, inherited from the French and alive and well in Australia.

Former Sydney chef Christine Jones (not her real name) says newcomers to the trade will do “almost anything” to work at a prestige restaurant. “You say to yourself: ‘This is an amazing opportunity. I’m going to learn from some of the best in the industry.’ ’’

After completing her apprenticeship, Jones got her dream job at Sydney’s three-hatted Bridge Room, owned by the Fink Group and high-profile entrepreneur Ross Lusted. There she found herself working from 8am until 11pm or midnight. “If we got out before 11 or 11.30, it was something special.’’

Ms Jones recalls being pressured to work when she had the flu, despite her protests that she was contagious and she could infect customers. The next day the head chef told her she had earned respect by working while ill.

“I thought, ‘Gee, what have I got myself into?’ ’’

Soon after, Ms Jones left the industry for good. “You know it’s going to be tough in hospitality, but you don’t expect to have to work yourself into the ground.”

Bridge Room part-owner Mr Lusted thanked Fairfax Media for raising concerns over work hours and pay.

“We are surprised at the questions you have asked as we haven’t had any complaints like this from our current or previous staff. We are looking into them now.”

No cop on the beat

Part of the explanation for the industry’s workplace failings is the deregulation of the economy and labour market started by the Hawke government in the 1980s and continued by the Howard government.

Where once powerful industrial tribunals set wages, and strong unions policed them, the system is now far more ad hoc.

The policing of underpayment in Australia is now left to the Fair Work Ombudsman, an agency widely regarded as ill equipped to deal with systemic problems.

Of the thousands of complaints of underpayment to the Ombudsman each year, a tiny fraction end in litigation. In 2015 it was just 0.29 per cent.

The Ombudsman’s approach has tended to be more light-touch than tough-cop, favouring education and co-operation over the big stick of litigation.

Combined with a long period of stagnant wages since the global financial crisis, conditions have become ideal for wage underpayment.

‘‘It’s like the perfect storm,” says Dr Stephen Clibborn, a workplace specialist and lecturer at the University of Sydney Business School. ”It’s perhaps unsurprising we are seeing so much wage theft in these industries.’’

The Ombudsman’s office has also been hampered by the dramatic decline of the other traditional, if informal, workplace regulator, the unions.

Unions

The ACTU’s high-profile “change the rules” campaign suggests unions believe their influence has been curtailed by legal changes, including around restrictions on entering workplaces.

However, union authority has also suffered from the collapse of membership from a postwar high of 60 per cent of the workforce to about 14 per cent now. In food services, membership is just above 2 per cent, among the lowest levels of all industries.

This year has seen signs of a fightback in Victoria, with established union United Voice launching a new hospitality offshoot, the cut price, bare basics Hospo Voice.

The fledgling union uses social and traditional media to target businesses that do not pay legal rates, and it uses an online “rate my boss”, tool to name and shame non-compliant employers.

So far, Hospo Voice has about 400 members. One of them is Anna Langford.

She was fired this year after complaining about being underpaid at Barry cafe in Melbourne’s Northcote.

She had been paid a flat rate of $18 an hour when, as a casual, she should have been paid at least $24 an hour plus penalties.

“I didn’t realise when I first got hired that I was being underpaid. That was my first cafe job. It sounded pretty standard … most of the industry underpays its workers,’’ she says.

“I didn’t realise when I first got hired that I was being underpaid,” cafe worker Anna Langford.

Photo: Justin McManus

“This generation of young workers has grown up in a time when union membership has just plummeted … I don’t think there’s much awareness of them [unions] at all.’’

Working with Hospo Voice and her colleagues, she won a settlement of the underpayment from her ex-employer.

Foreign workers and migrants

After World War II, Australia’s massive populate-or-perish migration program was based on permanent settlement. That changed in the Howard years in the 1990s when immigration priorities shifted to skills and temporary migrant workers, including the introduction of the controversial 457 visa.

Along with an explosion in the use of student and working holiday visas, the shift has ushered in a large transitory workforce that is vulnerable to exploitation.

Employers had pushed for such flexibility, arguing Australia suffered from a lack of a skilled local workers.

They are pressing again after the Turnbull government replaced the 457 visa in 2017 and tightened rules, including making it tougher for visa holders to become permanent residents.

“They’ve [the government] made it very, very expensive and very difficult to sponsor a skilled foreign national in our sector,” says Restaurant & Catering Australia’s Juliana Payne.

Restaurant and Catering Association CEO Juliana Payne.

Photo: James Alcock

Chefs from countries such the Philippines, Nepal or Chile are likely to be reluctant to speak up about under-payment if they are reliant on their employer’s sponsorship to remain in Australia. This is especially so for those workers hoping to turn their temporary visa into permanent residency, as many do.

When Fairfax Media exposed harsh working conditions in Rockpool restaurants in June, migrant workers came forward to complain about feeling beholden to their employer and of being treated like ‘’slaves’’. Even when pushed to work 60 or 70 hours a week for pay rates well below the minimum award rate, they felt they could not speak up, let alone leave their jobs.

A former general manager at Rockpool group says the company’s practice of hiring migrants was deliberate. “They were treated as dispensable on every level,” the one-time manager said.

Cafe worker Marc Dean is unusual in that he is paid full award wages.

Photo: Justin McManus

Penalties

Marc Dean had grown accustomed to being underpaid, in cash. For years he had worked in hospitality, using it to support his primary gig as a bass player.

So it has been a welcome change to work as a barista “on the books” at Mavis the Grocer in Melbourne. “I like the fact that I get penalties on weekends. Everybody here likes that.’’

Like his boss, Mr Dean is now an exception in the cafe business.

At the forefront of any debate in Australia about the economics of hospitality is penalty rates, the higher than normal payments for work outside traditional hours. Employers have lobbied successfully for cuts to penalties across a range of industries in recent years.

In hospitality, they are currently set as a 25 per cent loading for a permanent employee on Saturdays and 50 per cent loading for a casual. Sunday rates are being phased down to 150 per cent for permanent employees by the middle of 2019.

The industry association is pressing for more cuts and a flat rate of pay across the week, arguing penalties are a big impost precisely when restaurants and cafes are at their busiest: weekends and nights.

“We would like to see a seven-day ability to pay fairly, to pay appropriately for the level of work being done,” says Juliana Payne.

In this heated debate – irrespective of whether it’s the Coalition or Labor, the ACTU or employer groups doing the talking – the assumption is always that penalties are in fact paid. In 2015 the Productivity Commission compared Australian and international hospitality workplaces. Its findings had the unstated assumption that employers paid penalties.

The reality could hardly be more different.

Recent research about migrant workers by the Ombudsman, academics and Fairfax Media has consistently found that widespread underpayment and cash-in-hand payments as low as half the legal hourly rate are common.

In 2017 the federal Treasury identified the cafe and restaurant sector, along with construction and beauty salons, as the highest-risk sectors for Australia’s $50 billion, and fast-growing, ”black” economy.

“I can’t get too excited about arguments about penalty rates when so many people aren’t getting them,’’ says the University of Sydney Business School’s Dr Clibborn.

He says the annual debates about the national minimum wage and penalty rates take place in a bubble. With underpayment so rife, laws that once would have been unthinkable are now on the agenda.

In Victoria, the Andrews Labor government has vowed to make wage theft a crime punishable with up to 10 years’ jail. The NSW Labor opposition has flagged similar legislation.

In the past, employer groups would have fought such a move.  Instead, the response has been muted, a tacit recognition of the extent of the problem.

Given such widespread non-compliance, muddling on is not an option.

Paying full price

There appear to be two major alternatives to the problem of endemic underpayment in hospitality.

The first, as proposed by the industry association, is to replace penalties with a flat seven-day rate that recognises hospitality is a 24/7 business. This proposal repeatedly runs into the reality that, for most of us, weekends are still sacred.

Scrapping penalties would also hit the income of low-paid workers at a time when wage growth has stalled, and it would challenge a fundamental of the Australian industrial system: the idea of a living wage.

Since the 1907 Harvester decision the principle enshrined in the award system has been that Australians should be paid as “a human being in a civilised community”. It provided the basis for Australia’s relatively generous minimum wage.

Dr Clibborn points to this long-standing principle in Australian industrial relations: a business that does not pay a living wage should not be in business.

“We seem to be losing [sight of] that,’’ he says.

Rather than further cutting penalty rates that many employers don’t pay anyway, Dr Clibborn says businesses should be made to pay properly.

This would involve giving regulators a more proactive remit and the teeth to persuade employers that the gamble of non-compliance is not worth it.

It would require a major reboot of the industrial relations system and an overhaul of migrant visas to give those workers greater rights.

One of the upshots may be people eating out less often or buying fewer coffees. Certain businesses – some that have planned poorly – may not survive. As already discussed, greater compliance would probably lead to price increases in many cafes and restaurants.

‘‘Maybe consumers do need to pay more and maybe we will have fewer coffee shops,” says Dr Clibborn.

“But we won’t know, and we shouldn’t try to guess this, until we actually enforce our employment laws.”

Despite the hardships, including many competitors underpaying staff, a well-run cafe or restaurant can survive doing things lawfully and “on the books”. But it’s not easy.

Jackson Davie says weekends are tough, especially Sundays. He is now agonising over whether to introduce a 10 per cent weekend surcharge to cover penalties, as many of his competitors have done.

His barista Marc Dean is no union activist. ‘‘I’m a staunch supporter of capitalism and individualism,’’ he stresses.

But he backs his boss in looking after his employees.

“I believe there’s ethical and dignified ways of making capital without being a total piece of shit.’’