If your business contracts its transport services out to another transport operator or labour hire business, and those businesses breach workplace laws, could your business be liable too?
Businesses and individuals in the transport industry may be held liable through the 'chain of responsibility' for breaches of the Heavy Vehicle National Law, or orders of the Road Safety Remuneration Tribunal as supply chain participants.
It is also possible for transport and logistics operators to be found liable for the contraventions of others in their supply chain under the Fair Work Act 2009 (Cth) (the FW Act).
The FW Act provides that a person who is "involved in" a contravention of a workplace law is also deemed to have breached that workplace law too.
A person will be "involved in" a contravention if the person has:
- aided, abetted, counselled or procured the contravention;
- induced the contravention, whether by threats or promises or otherwise;
- been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
- conspired with others to effect the contravention.
Contraventions frequently relate to underpayment of award entitlements, such as minimum wages, allowances and overtime.
The Office of the Fair Work Ombudsman (FWO) has traditionally pursued individuals such as directors, senior executives and human resources personnel for their involvement in their business's contraventions.
However, in recent years the FWO has been closely scrutinising the contracting practices of 'top of the chain' companies who fail to ensure that their contracting parties are paying their workers their proper entitlements.
An investigation and prosecution of Coles Supermarkets was conducted between 2012 and 2014 for contraventions of the FW Act for its involvement in the underpayment of sub-contracted trolley collectors by its direct contractors.
It was alleged that Coles was involved in the contractors' contraventions, because:
- Coles knew that trolley collection workers at its sites were not being paid the correct minimum wages and conditions; and
- Coles failed to take effective action to require its trolley service providers to comply with workplace laws.
The prosecution was settled by Coles entering into an enforceable undertaking until 2018, which requires Coles to, amongst other things:
build its 'in-house' trolley collection model by direct employees;
reimburse underpaid workers a total of $220,174.69; and
undertake annual audits of a number of its sub-contractors.
The FWO has also renewed its focus on sham contracting arrangements. A sham contract is one where an employer wrongly characterises an employee as an independent contractor. These types of arrangements are typically put in place to enable an employer to undercut minimum statutory entitlements such as minimum wages, leave, superannuation, taxation and insurance.
Sham contracting is a serious breach of workplace laws and heavy penalties can be imposed.
In 2013, transport company Happy Cabby Pty Ltd was fined $238,920 for incorrectly classifying seven of its employees as contractors, which led to the underpayment of wages and entitlements.
Recently, the FWO cautioned the South Australian Department for Education and Child Development (DECD) over its lack of corporate governance on transport contracts. The FWO publicised its statement of findings in November 2014, which found that DECD had failed to:
- prohibit unlawful sub-contracting (where it found that nine out of the thirteen transport contractors engaged by DECD had misclassified their employees as sub-contractors);
- undertake periodic reviews or audits of contractors to ensure they met minimum State and Commonwealth legislative requirements; and
- provide ongoing adjustments for cost increases (such as wages) for all operators over the life of the contract.
The FWO warned DECD that unless its procurement practices improved it would be prosecuted for the underpayments.
The DECD is now under scrutiny for not taking sufficient action as the top of the chain business to prevent sham contracting in its supply chain.
Protect your business
A finding of accessorial liability against your business could lead to hefty penalties.
For each breach of the FW Act, the FWO can seek a penalty of up of $51,000 for companies and $10,200 for individuals.
The FWO's recent investigation and prosecution activity shows that turning a blind eye to your supply chain contractors' breaches of workplace laws could lead to significant, and expensive, consequences for your business.
Businesses that engage labour through contracting or labour hire models need to take steps to ensure correct entitlements are paid to workers performing work for their benefit. To best protect your business, pro-active due diligence is key.
This can be achieved by:
- implementing procurement processes that ensure contractors comply with workplace laws;
- assessing contractors' ability to comply with workplace laws in the future in light of the supply terms proposed;
- keeping tight controls on sub-contracting arrangements; and
- reviewing and auditing compliance on at least an annual basis.
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.