The Calombaris bankruptcy reveals the inefficiencies in the IR system

I have a piece in The Australian this morning on the indignation that is rife against restaurateur George Calombaris and his success achieved while not paying everyone the government prescribed wage rate.

This was not a fraud – people were not duped.  The employees were fully aware of how much they were being paid.  They were adults who knew the industry remuneration levels and not idiots in need of protection.  Indeed, employees in the industry are often hard up and acutely aware of any differences in wages offered buy alternative employers.

The industry is, of course, intensely competitive so no monopoly rents are possible. But Calombaris is the trend setter and supplier of excellence.  Hence, many seeking to gain good experience at the apex of the industry would surely seek to work for him – if necessary, at a discounted wage rate. Low wages, or more onerous working conditions, are not uncommon for people seeking to gain skills at the outset of their careers and such costs will be more readily incurred the better the skill or tuition gained (university students actually pay to acquire their skills). Calombaris was unlikely to have been personally involved in setting the wage intricacies. But why should he not be able to capitalise on this skill and expertise he has developed?  If he is made unable to do so he will find other means of rationing his available positions between the many aspirants for them.

The backdrop of this is that Australia is almost unique in having government wage setting arrangements that results in very high minimum wages.  There are 120 “modern awards” covering the industry, which means thousands of different permutations of remuneration rates driven by ever-shifting demand.   Most hospitality employers use sophisticated software packages to avoid their employees shifting into areas where penalties suddenly are required.  It is unclear why the Calombaris outlets did not.

Above all, the current arrangements mean great distortions as certain activities are either priced out of the market (esp. Sundays) or required wages are so far out of line that employers break the law and offer cash in hand etc to enable costs to be kept down.

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22 Responses to The Calombaris bankruptcy reveals the inefficiencies in the IR system

  1. Pyrmonter

    Alan

    Good work.

    I fear the arguments in favour of either efficiency, or even simple, intuitive fairness, are being lost. The Unions’ rhetoric of ‘wage theft’, which invariably includes amounts such as redundancy penalty payments, has cross-party support. How this came about is what we need to consider.

  2. notafan

    Is odd

    I know a couple of young lads in the building industry, during and at the end of apprenticeships being put on ‘indefinite unpaid leave’ and they just had to find themselves jobs, one was in quite a financial pickle for a couple of months.

    Completely unrelated employers so I get the impression it’s not uncommon and no complaints if you want to stay in the industry.

    Whereas be a tall poppy…

  3. woolfe

    Here’s one for you. What is a “Closely Held Employee” according to ATO?

  4. Part of me is a tad distressed, and I cannot understand the “rhyme or reason” of these events.
    George is now facing the ultimate ignomy, e.g. loss of business, loss of house and other personal assets, and bankruptcy.
    What comparable losses have the decision-makers at the ABC, Woolworths, Dominos, et al, suffered in basically the same circumstances?

  5. Art Vandelay

    What comparable losses have the decision-makers at the ABC, Woolworths, Dominos, et al, suffered in basically the same circumstances?

    Good point. Also what about the collusion between some major employers (eg, Coles) and the unions to implement workplace agreements which resulted in below-award wages for staff? (all with the approval of the Fair Work Commission)

    Apart from one or two commentators in the Australian, we largely heard nothing but crickets about this. And no-one from the unions, employers or bureaucracy has been punished.

  6. Yarpos

    Cobblers basically. If you run a business or a string of businesses its up to you to run them properly or hire people who can.

  7. FelixKruell

    Yarpos:

    Cobblers basically. If you run a business or a string of businesses its up to you to run them properly or hire people who can.

    We can take that approach, sure. But then we can’t complain about low economic growth, high unemployment, and all the other ills that flow from that approach.

    When an entire industry in a key sector only survives by not taking the effort and incurring the cost of complying 100% with our employment laws, the problem is with the laws. Not the industry.

  8. BorisG

    The employees were fully aware of how much they were being paid. They were adults who knew the industry remuneration levels

    evidence?

  9. BorisG

    I don’t quite understand if the underpayment was intentional or an oversight. if the latter then the punishment is disproportionate.

  10. Fair Shake of the Sauce Bottle

    Somethings crook in Tallarook. Is there a link somewhere to the details behind all of these wages fiasco s

    Thanks

  11. Robber Baron

    Calombaris is not facing bankruptcy. A company he is a minority shareholder in has gone into administration. He was not a director therefore he cannot be charged with trading whilst insolvent. He sold 60% to Radek Sali for reportedly 12 million. I think he is laughing as he got out early.

    George may be selling up his million dollar properties because he might be leaving Australia.

  12. Amused

    All those employees are now sitting at home wondering why the ‘correct’ rate of pay multiplied by zero hours equals zero dollars in their bank accounts.

  13. Louis Litt

    “Sophisticated software” – practically its too hard.What award do you use, what’s your job description, what type of employee are you, what entitlements, what wage rate for the day, the time of day.

    It’s all to hard and everyone is tripped up.

    You’ve been Litt.

  14. These kinds of businesses are falling over left right and centre. Once again the MSM is off on one its hobby horses, ‘wage theft’ as though someone has specifically put into a plan to go rip all the workers off. This episode is another very example of how dumb things are in Australia right now. I never hear any discussion about the business destroying ‘costs’ of actually being in business today, especially if that business has the temerity to employ people. I see now even our genius Victorian Labor government wants to sacks lots of public servants. Why? because it costing them too much to have them on the payroll and there budget is in a real mess. Idiots in the Labor camp say we will have the highest paid workers of anywhere; and I would add to that and the least number of them as well. And all the brain idiots on TV commentary have not got a clue. We are by comparison to many countries, a low productive one hooked up to a unsustainable wage regime, stupidly protected by an Industrial Relations law that is way way too complicated. And they wonder why businesses don’t want to hand out full time permanent jobs, only part time casuals. The document for the award rate for restaurant staff is how many pages of IR gobbledygook; somewhere up around 80 pages I believe. When I was a young fellow growing up in country north east Victoria, it was so easy to get job. Getting employment today is more about complying with bloody government red tape, than actually thinking about doing something.

  15. But Calombaris is the trend setter and supplier of excellence. Hence, many seeking to gain good experience at the apex of the industry would surely seek to work for him – if necessary, at a discounted wage rate.

    Um… if his businesses are so excellent, shouldn’t he be earning enough to pay his workers fairly?

  16. That’s the whole point, it appear that nobody knows how to, because it so bloody complicated.

  17. Funny how these companies never seem to overpay their workers by mistake.

  18. Funny how these companies never seem to overpay their workers by mistake.

    There are many stupid or ill-informed comments surrounding the Calombaris affair.
    This is one of the more stupid.

    Overpayments happens all the time, more often than underpayments – as many overpayments are deliberate.

  19. Colonel Bunty Golightly

    I went to work every day for six days a week. In return my employer gave me 200 beer tokens a week. My union found out that my employer should have been giving me 220 beer tokens a week. The union said that I was being cheated and took my employer to court. My employer declared bankruptcy. Now I get 30 beer tokens a week from Centrelink. But I won because Im no longer getting underpaid. Hmm? Anyone got any spare beer tokens?

  20. Most hospitality employers use sophisticated software packages to avoid their employees shifting into areas where penalties suddenly are required. It is unclear why the Calombaris outlets did not.

    The underpayments occurred from 2011 to 2017.
    Hospitality Awards were very different in those days. The “simplification” of the past couple of years had yet to occur.
    Many of the wage packages the Made Group paid to staff in those years, especially the earlier years, were perfectly legal under the award conditions of the time.

    Later “clarification” of some award provisions was retroactively applied by the FWO, in a most brutal manner, to payments made pre-2015.

  21. JC

    Overpayments happens all the time, more often than underpayments – as many overpayments are deliberate.

    Then that’s fraud, you ignoramus.
    ————

    Even if these underpayments hadn’t occurred, this “business” would have been exactly in the same position as it is now. This was the hospitality equivalent of a conglomerate. There was no rhythm or reason in slapping together a frozen yogurt chain, a kabhab one, high end chain restaurants and wine bars and wholesale suppliers.
    It was a stupid business plan.

    Anyway, nice piece as always, Alan.

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