The Fair Work Ombudsman (FWO)'s proactive approach in its role of monitoring the 2.24 million active businesses in Australia has caught out a myriad of employers whose employment practices contravene the Fair Work Act 2009 (Cth) (FW Act). Expanded statutory powers of Fair Work Inspectors are being exercised to investigate, unannounced, employment practices of a wide-ranging number of workplaces and industries. In this context, and with increased scope for liability under the FW Act, now more than ever it is critical that those potentially within the FWO's sights review and assess governance structures to ensure they adequately address, and ensure compliance with, obligations arising under the FW Act.
Liability under the FW Act
In the wake of a record penalty of over $400,000 imposed against a 7-Eleven franchisor in June 2016, the (then) Ombudsman, Natalie James, proclaimed the following in a speech to the Australian Human Resources Institute:
"We are pursuing employers who cannot or will not pay, using every lever available to us to ensure wages that should have been paid to workers are put back into their hands. And we are striving to ensure those who breached their workplace obligations don't get the chance to do that again."
At that time, one such lever available to the FWO was Section 550 of the FW Act, the 'accessorial liability' provision. The FWO has relied upon this provision to prosecute individuals, and third parties 'involved' in a contravention of the FW Act, in their own capacity.
Since the introduction of the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 in September 2017 (Vulnerable Workers legislation), the 'levers' available to the FWO now also include express liability provisions for holding companies and franchisors with respect to contraventions by subsidiaries and franchisees respectively, expanded investigatory powers of Fair Work Inspectors and the 'serious contraventions' offences with increased penalties. See our in-depth article on the Vulnerable Workers legislation here.
This means that the range of possible corporate and individual liability for contraventions of the FW Act is now expanded to include:
- direct liability for employers as the bearer of employer-related obligations under the FW Act
- direct liability for holding companies and franchisors with respect to contraventions by subsidiaries and franchisees respectively
- accessorial liability for individuals 'involved in' contraventions of the FW Act
- accessorial liability for third party entities arising from contraventions by other employing entities, for example within a supply chain.
Those who have been prosecuted under the accessorial liability provisions include human resources staff, third party accountants, franchisors and head contractors with respect to non-compliant practices of a labour-hire company.
Enforcement action by the FWO
Historically, the FWO typically commenced investigations into employment practices upon receiving notification of a grievance from an employee.
By contrast, the FWO's approach towards enforcement is now increasingly proactive rather than reactive, and this front-foot approach has uncovered a vast array of contraventions, particularly in the cleaning, security and hospitality sectors.
For example, in 2014 the FWO deployed six Fair Work Inspectors, unannounced, to interview cleaners about their employment conditions when they attended the MCG after an AFL match to perform work. The FWO identified underpayments, contraventions of pay slip obligations and other breaches of the Cleaning Services Award 2010. The FWO successfully prosecuted the employer, a labour-hire company, and relied upon the accessorial liability provisions to prosecute the head contractor and two of the labour-hirer's owner-operators in their individual capacity. The employees were back-paid the outstanding $37,471 and the Federal Circuit Court handed down $168,070 in penalties.
As a result of the Vulnerable Workers legislation, Fair Work Inspectors now have even greater powers to uncover contraventions. Formerly, Fair Work Inspectors could only issue a notice for production of documents and not compel anyone to answer their questions. A right to silence existed. However, since the Vulnerable Workers legislation was introduced, the FWO may issue notices requiring a person to give information, produce documents or attend before the FWO for questioning if the FWO believes on reasonable grounds that a person has information or documents relating to an FWO investigation into a contravention of the FW Act.
The FWO has relied upon these expanded powers of Fair Work Inspectors to conduct 'blitzes' on business sectors which are known to involve non-compliant practices and which typically involve the employment of vulnerable workers performing low skill-level work.
In 2018 alone, the FWO has carried out the following workplace blitzes:
- 626 businesses in the Mid-North Coast and Mid-Western Region of NSW, where 48% of businesses were non-compliant and $431,792 was recovered for employees
- 243 hospitality businesses in popular café hubs including Victoria Street in Melbourne, Glebe Point Road in Sydney and Fortitude Valley in Brisbane. The FWO found 72% of businesses were non-compliant and $471,904 was recovered for employees
- 197 businesses in Western Sydney, where 64% of businesses were non-compliant and $369,324 was recovered for employees
- 125 businesses in Adelaide, where 45% of businesses were non-compliant and $54,701 was recovered for employees;
- 38 businesses in Alice Springs and Tennant Creek, where 39% of employees were non-compliant and $77,984 was recovered for employees
- 54 businesses in Darwin and surrounds, where 54% of businesses were non-compliant and $20,772 was recovered for employees
- 55 businesses in the South East Coast of Tasmania, where 31% of employees were non-compliant and $9,580 was recovered for employees
- 70 businesses in the Barossa region of South Australia, where 50% of businesses were non-compliant and $11,430 was recovered for employees.
The results of these workplace blitzes demonstrate that many employers are falling short in their obligations under the FW Act, with non-compliance as high as 72% among popular metropolitan cafés. The vast majority of contraventions uncovered by the FWO were underpayments, record keeping failures and breaches of modern awards.
Key points for employers
Given the clear message from the FWO that it intends to do everything within its powers to ensure employers, individuals and other relevant third parties comply with their obligations under the FW Act, it is imperative that appropriate governance structures are developed and implemented to address compliance with the FW Act.
In order to achieve this, employers and relevant individuals with potential liability will need to:
- ask themselves whether there is sufficient knowledge, understanding and implementation of processes and procedures with respect to all aspects of the employment life-cycle
- identify where the gaps may lie and develop and implement strategies for remedial action
- undertake this assessment with respect to the employment practices within their network (being a corporate group or franchise network as relevant) as well as those of third party entities within supply chains (as relevant) in order to satisfy themselves that those entities' employment practices comply with the FW Act.
By taking these steps, employers and relevant individuals will be best placed to mitigate the risks arising from non-compliance with the FW Act.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.