The media coverage of the underpayment allegations and
prosecutions against franchisees of 7-Eleven has highlighted the
potentially significant business damage (both legal and
reputational) which can arise from underpayment of workers, whether
vulnerable or not. It has also demonstrated the speed with which
such damage can occur.
Coverage of the magnitude of the allegations has however clouded
a significant underlying shift in enforcement approach by the Fair
Work Ombudsman (FWO) that has been ongoing for at
least seven years – the move to supply chain and personal
liability for all involved in employment related
Piercing the corporate veil & supply chains
No longer can managers or companies expect that the corporate
veil or complex corporate or contracting structures will protect
them from liability and penalties for non-compliance by others in
their labour supply chain.
The FWO's focus is no longer just on the direct employers,
but on all of those that have been "involved in" any
non-compliance. This approach has seen prosecutions against:
Managers of employers personally;
Principal contractors and their managers;
Head contractors and their managers;
Franchisors and their managers; and
Advisers to employers, including external accountants.
For example, in 2012, the FWO commenced multiple underpayment
prosecutions against numerous persons and entities, including Coles
Supermarkets, associated with underpayments to employees who were
engaged by subcontractors to collect shopping trolleys.
To Coles' credit, to resolve the prosecutions against it, it
entered into an enforceable undertaking to, amongst other things,
back pay its contractors' employees for the underpayments
(approximately $220,000). This has not prevented the Federal Court
recently imposing personal penalties on the director and manager of
Coles' contractor of $188,100, being 75% of the available
maximum penalty for the breaches.
Similar prosecutions relating to trolley collection services for
other significant retail entities remain ongoing.
Aggressive use of accessorial liability
The FWO's ability to extend its reach through the corporate
veil and up the supply chain sits in section 550 of the Fair Work
Act 2009 (Cth) (FWA) which provides:
A person who is involved in a contravention of
a civil remedy provision is taken to have contravened that
A person is involved in a contravention of a
civil remedy provision if, and only if, the person:
Has aided, abetted, counselled or procured the contravention;
Has induced the contravention, whether by threats or promises
or otherwise; or
Has been in any way, by act or omission, directly or
indirectly, knowingly concerned in or party to the
Has conspired with others to effect the contravention.
As will be apparent from the above two provisions, the threshold
for a person to be deemed to have contravened an offence provision
is not high. Decisions in the area have confirmed that all that is
required is that the:
person knew the employees were employed by the offending
employer during the relevant period;
person had knowledge that an award (or provision of the FWA
setting a minimum entitlement) applied to the employee, although
they did not need to know the name of the award or detail of the
employees performed work of a kind which entitled them to
receipt of entitlements under the award or the FWA; and
employer did not meet the requirements.
In circumstances where contracts, particularly those
predominantly for labour, are awarded at prices where it would be
impossible for the contractor to perform the work whilst still
complying with FWA and award minimum entitlements, it is relatively
easy for the FWO to satisfy the above requirements and therefore
prosecute the head entity and potentially their managers as
It is now more essential than ever to avoid personal liability
that directors and managers of businesses which have a significant
labour component in their supply chain audit FWA, Modern Award and
enterprise agreement compliance.
At its most fundamental, directors and managers need to ensure
that their businesses and those that supply to them at least are
keeping appropriate employee records in compliance with the FWA
from which it is possible to properly assess compliance and defend
the possibility of prosecutions.
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.
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An employee that refused a reasonable offer of settlement was ordered by the FWC to pay his ex-employer's legal costs.
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