The recent and unprecedented decision of the Federal Court in Minister for Immigration and Border Protection v Choong Enterprises Pty Ltd (No 2) [2015] FCA 553 (“Choong”) serves as a timely reminder of the risks employers face in sponsoring employees under visa programs and failing to comply with their obligations as a sponsor.

The Migration Regulations 1994 (Cth) (the “Regulations”) impose stringent sponsorship obligations on employers who register in the 457 visa program and sponsor ex-pat employees. The sponsorship obligations are ongoing for the period an approved sponsor employs a 457 visa holder. However, implementing and maintaining appropriate employment practices that assist in complying with these obligations can be tedious and, as a result, is often neglected by sponsors.

In Choong (the facts of which are set out below), the Department of Immigration and Border Protection (“DIBP”) prosecuted the employer for failure to comply with several of its sponsorship obligations under the Migration Regulations 1994 (“Migration Regulations”), resulting in a $175,000 civil penalty being imposed on the employer, and the employer being required to reimburse the affected employees for migration fees that the employer had attempted to claw back by way of deductions from their pay. The employer was also ordered to pay the costs of the proceedings.

The decision in Choong demonstrates the potentially significant legal, financial and reputational consequences for employers for failing to ensure that  their employment practices are sufficiently robust to ensure compliance with their sponsorship obligations.

This article examines the legislative framework of the 457 visa program, the impact of the decision in Choong and what steps employers who sponsor ex pat employees under the 457 visa program can take in order avoid a similar outcome.

Failing to comply with sponsorship obligations: how high are the stakes?

The Migration Act 1975 (Cth) (“Migration Act”) currently provides that any person who fails to satisfy the prescribed sponsorship obligations, such as those set out in the Regulations, will be subject to a maximum penalty of 60 penalty units (currently $10,200) for each contravention of those obligations.

Further, where a sponsor has committed a contravention that is founded on the same facts of another contravention, or forms part of a contravention with  a ‘similar character’, the Migration Act provides than an eligible court may order one penalty for the related contraventions. In these circumstances, the overall penalty cannot be greater than the sum of the individual penalties if the contraventions had been pursued separately.

The decision in Choong

Choong Enterprises Pty Ltd (“Choong Enterprises”) operated a number of restaurants and cafes in Darwin. A large proportion of its employees were 457 visa holders.

On review of Choong Enterprises’ employment records it was found that it had failed to comply with a number of its sponsorships obligations, as follows:

• Sponsor to ensure terms of 457 visa holder’s employment are equivalent to that offered to comparable Australian employees: Regulation 2.79 of the Regulations requires that a sponsor ensure a 457 visa holding employee is subject to equivalent terms and conditions of employment that an Australian citizen or permanent resident employee would received in their nominated role.
• The review revealed that sponsored employees employed by Choong Enterprises were being paid below that of their Australian counterparts. The remuneration was in fact below what the sponsored employees were eligible to receive under an applicable modern award and even the legislated minimum wage. Additionally, the sponsored employees were not paid over-time allowances, personal leave entitlements or superannuation payments.
• Record keeping obligations with respect to wages: Regulation 2.78 of the Regulations requires that a sponsor keep ‘independently verifiable’ records of wages paid to sponsored employees. In this matter, Choong Enterprises failed to keep any records and paid its employees by way of cash in envelopes with relevant annotations.
• 457 employees to perform nominated roles: Regulation 2.68 of the Regulations requires that sponsored employees perform work that is relevant to their nominated occupations. Choong Enterprises, however, was found to have nominated their sponsored employees for roles that were more substantial and attracted higher pay than the roles being performed. The sponsored employees were recruited as chefs and café managers when, in fact, they were found to be performing the work of fast food takeaway restaurant cooks and assistants. As a result, Choong Enterprises obtained a monetary benefit and underpaid the sponsored employees.
• Prohibition from recovering migration agent fees from sponsored employees: Regulation 2.87 of the Regulations prohibits sponsors from taking any action to claw back or recover costs associated with obtaining sponsorship registration. The examination of Choong Enterprises’ records revealed that it was making deductions from the sponsored employees’ wages to reimburse migration agent costs.

Based on these findings, the Court imposed a total penalty of $175,000, and ordered that Choong Enterprises reimburse the sponsored employee(s) for their migration agent fees in the amount of $6,400.

The Court also ordered that Choong Enterprises pay the costs of the proceedings.

Why is this decision significant?

The Choong decision has taken the 457 sponsorship and migration agent community by surprise, not only because of the extent of the penalty imposed, but also because it is unprecedented for the DIBP to seek penalties in the Federal Court for non-compliance with sponsorship obligations.

With respect to this decision, Senator Michaelia Cash, Assistant Minister for Immigration and Border Protection, has stated:

“This is the first civil penalty application my Department has undertaken in the Federal Court, and is the largest civil penalty any court has imposed for a breach of sponsor obligations”.

The decision has also been handed down amidst an influx of negative publicity surrounding the 457 visa program. This is possibly due to numerous allegations about the exploitation of foreign workers working in Australia under such visa programs that are commonly at the forefront of our daily media-feed. The working visa system has also been the subject of further scrutiny by virtue of the Independent Review of Integrity of the 457 Visa program that commenced in March this year, and this too may have contributed to the negative perception of the 457 visa program.

What is clear is that this decision was intended to provide a warning to employers about the aggressiveness with which Australian government officials are now willing to pursue 457 sponsorship violations. This is confirmed by the Assistant Minister’s further statements:

“The stiff penalty this company has received should send a warning to other sponsors: if you fail to meet your requirements, my Department may impose administrative sanctions, issue an infringement notice, execute an enforceable undertaking, or apply to the federal court for a civil penalty order”.

One further item to note in considering the significance of the Choong decision is that the penalty regime applied in Choong is different to that outlined above, to the extent that when the contraventions in Choong occurred corporations were exposed to a maximum penalty of 300 penalty units for breaches of their sponsorship obligations, and individuals to a maximum of 60 penalty units. The distinction between legal persons has since been removed so that the maximum penalty of 60 penalty units applies to sponsor corporations and individuals alike.

While this may reduce the potential maximum penalties to which employers can be exposed for failing to comply with their sponsorship obligations, it does not reduce the extent of their obligations or the risk that they will be prosecuted for those failures.

What can employers do to avoid a similar outcome?

The Choong decision means that it is now too risky for employers to not be fully across their sponsorship obligations and resources should be devoted to ensure that employment frameworks are sufficiently robust to ensure ongoing compliance with those obligations.

As part of that process, sponsors should be sure to consult with their migration and employment lawyers in respect of the following:

• when drafting an employment agreement for a non-resident employee, namely a 457 visa holder or applicant and with respect to claw-back provisions;
• when amending employment conditions pertaining to a 457 visa holding employee; and
• in undertaking a precautionary audit of their migration records to ensure they have a well established process, in case, amongst other things, they receive a monitoring request.