Toys ‘R’ Us agrees to set up whistleblower hotline on pay problems after deal with Fair Work Ombudsman

The Fair Work Ombudsman has dropped its legal action against retail giant Toys ‘R’ Us after the company admitted to underpaying up to 1,000 of its young workers and agreed to establish a phone hotline where staff could raise pay complaints.

The Ombudsman launched legal action in the Federal Court against Toys ‘R’ Us in December 2009 after an investigation revealed the company had underpaid retail workers.

In some cases, agreements with individual workers failed the “no disadvantage” test introduced by the Rudd Government to ensure individual agreements could not pay less than an industry award. In other cases, the company had failed to pay correct employee entitlements under state awards.

Toys ‘R’ Us paid more than 1,000 employees in New South Wales, Victoria, South Australia, Western Australia and the ACT compensation of almost $1 million in March 2009, but the FWA’s legal action continued until the two parties signed an enforceable undertaking in late December.

Under the terms of the deal, the company has agreed to set up the whistleblower hotline, send all payroll staff to training courses, conduct a series of audits of their payroll function and apologise to staff.

In lieu of the financial penalties originally sought by the Ombudsman, Toys ‘R’ Us have also agreed to donate $300,000 to charitable groups and organisations involved in protecting young and vulnerable workers. The payments, to be made in the next month, must be approved by the Ombudsman.

While Fair Work Ombudsman executive director Michael Campbell said the breach is one of the biggest seen by the Ombudsman’s office, the watchdog had accepted that the underpayments were not deliberate.

“An extraordinary number of young and vulnerable employees were underpaid a large amount of money, which we are pleased has now been voluntarily paid to them as a result of this investigation,” he said in a statement.

“We accept that the contraventions were inadvertent, rather than deliberate, and we are pleased to have negotiated a significant enforceable undertaking with the company that will result in the prosecution being discontinued.”

The use of enforceable undertakings – which allow regulators to do “deals” with organisations or individuals who breach laws without going through the lengthy and costly process of civil proceedings – appears likely to become a more common tactic for the Ombudsman.

IR lawyer Peter Vitale says the use of undertakings is welcome, as is represents a subtle shift away towards “education and enforcement, tempered with a bit more of a practical approach” rather than just punishment.

“This probably indicates a bit of a change in their approach and I think it’s one to be applauded.”