I do not recall worker underpayments ever having been an
election issue before, or even rating a policy announcement but
this year, under the media spotlight ignited by 7-Eleven, this
issue is now very much on the agenda. This is part of a trajectory
of heightened enforcement activity and a broader view of who might
be liable for pay infringements.
Employers not complying with award minimum wages, or trying to
avoid awards by sham contracting, is not a new issue. In the old
days, pre-Workchoices in 2006, the Department of Industrial
Relations in each state had inspectors to investigate and prosecute
underpayments but it was pretty low key, and had not been given a
shake up for a long time. With Workchoices and the Fair Work Act,
and the shift of responsibility to the Federal Government, came a
much higher-profile regulator, in the form of the Fair Work
Ombudsman (FWO) which had a more sophisticated approach to
enforcement (drawing on the likes of the ACCC), including savvy use
of the media to spread the word.
So, when the 7-Eleven issues became public knowledge, the FWO
was the responsible regulator. In order to minimise the prospects
of an aggressive approach from the FWO, 7-Eleven appointed its own
independent panel, headed by Professor Allan Fels, to deal actively
with the claims of employees of its franchisees who had been
underpaid. In many cases the workers were recent migrants or on
student visas with poor English and no resources, and were
vulnerable to threats to report them to Immigration, so that they
may be detained or deported, if they complained. It was reported
that some franchisees paid the right money on the books, so that
the records looked OK, but then forced the employees to pay back up
to half of their pay in cash.
Among the issues this raised was the point that 7-Eleven's
business model gave franchisees a very small margin, so that
franchisees were under pressure to squeeze pay in order to make a
dollar. So while 7-Eleven wasn't directly responsible for the
employee underpayments, it was responsible for the structure within
which underpayments happened, and for not acting to ensure
franchisees met their legal obligations.
During May, 7-Eleven dispensed with its panel and internalised
its claims assessment process. Professor Fels has noted that this
occurred after the independent panel had served 7-Eleven's
purpose as window dressing for the Senate enquiry into this issue,
and that the main point of difference between 7-Eleven and the
panel was that 7-Eleven wanted to insist on strict legal proof of
entitlements while the panel took a broader view, given the
vulnerability of the employees and the lack of full records and
evidence - because of the franchisees' conduct - to enable
cases to be strictly proved.
In response, the Turnbull Government has promised that if it is
re-elected, it will appoint Professor Fels to a Migrant Worker
Taskforce within the FWO, with an extra $20m in funding, and with
franchisors being made directly legally responsible for
underpayments to franchisee's employees. The ALP has also
promised to stiffen penalties, and to focus on sham
The role of the Taskforce will be to pursue exactly the issues
which have come up at 7-Eleven – and elsewhere. Where is
"elsewhere"? It extends well beyond franchising:
Recent media coverage has also included
Myer's cleaners and Coles and
Woolworths' trolley collectors. Note that Coles has
received kudos for a proactive approach to prevent underpayments
down the supply chain, once the issue was raised.
The media focus on big players like this is enforcement activity
in itself because public pressure may do more, more quickly, than
legal action. These high profile cases also serve as education for
everyone else - and the message that people up the chain can be
legally liable for being knowingly involved in the exploitation of
workers at the bottom of the chain, or via the proposed legislation
to bring franchisors directly into the loop, is a new element in
this issue which goes a step beyond the traditional legal
Whatever the outcome of the election, it seems that this is an
issue with some way to run yet, with a more-or-less bipartisan
commitment to do more to protect vulnerable employees. Prudent
businesses will make sure that suppliers of goods and services over
whom they have some influence are doing the right thing, and take
responsibility where evidence of underpayments emerges.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
An employee that refused a reasonable offer of settlement was ordered by the FWC to pay his ex-employer's legal costs.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).