Australia: Can a health or aged care provider be liable if their subcontractor does not comply with the Fair Work Act?

Last Updated: 18 September 2016
Article by Rachael Sutton

In a tighter fiscal environment with reduced budgets, health and aged care providers are taking steps to focus their business on their core competency - the delivery of health and/or aged care services and are exploring outsourcing.

Health and aged care providers are outsourcing not only ancillary tasks but also engaging contractors to provide additional clinical resources, including nurse agencies. Outsourcing arrangements can improve financial results by reducing administrative costs and increasing revenues, efficiency and service quality. Areas that are strong candidates for outsourcing include revenue cycle services, human resources, billing, finance and administration, information technology, laundry, housekeeping, food services, security and some clinical services.

Selecting the proper scope of services to be outsourced is the first and sometimes the most difficult decision for the outsourcing team. The decision involves many considerations such as:

  • What is the goal of the outsourcing arrangement?
  • What are the risks?
  • Are there experienced outsourcing providers that can effectively provide the service?
  • Does it give the organisation a competitive advantage?
  • How much costs savings can be achieved?
  • What internal expertise will be retained to effectively manage the outsourced service?
  • Are there legal restrictions to outsourcing the function?

Although outsourcing can have many benefits, it will fail if it is not done for the right reasons and managed successfully. Worse still, it can potentially expose the organization and senior staff and executives to claims for underpayment or accessorial liability in respect to breaches by the outsourcing vendor in respect to employee entitlements owed by the subcontractor under the Fair Work Act, 2009 (Cth) (FWA). This would include public sector hospitals using employees of contractors whose terms and conditions are subject to the FWA.

There have been a number of recent prosecutions by the Fair Work Ombudsman (FWO) that provide a warning for organisations for whom contracting is a means of engaging labour.

The FWO is involved where the terms of engagement of a worker, supposedly as a contractor or engaged as an employee by a contractor, results in payment of remuneration less than that which would have been payable had the worker been engaged as an employee.

Accessorial liability issues for individuals also arise in relation to sham contracting, underpayment, and breaches of the National Employment Standards (NES) under the FWA.

Section 550 of the FWA provides:

"Involvement in contravention treated in same way as actual contravention

  1. A person who is involved in a contravention of a civil remedy provision is taken to have contravened that provision.
  2. A person is involved in a contravention of a civil remedy provision if, and only if, the person:
    1. has aided, abetted, counselled or procured the contravention; or
    2. has induced the contravention, whether by threats or promises or otherwise; or
    3. has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
    4. has conspired with others to effect the contravention".

There may be circumstances where you are deemed to be "involved" in a breach of the FWA. Where this happens, you will be taken to have personally engaged in a contravention, which means that you can potentially be fined. This is in addition to any fines imposed on the actual employer.

For the organization or you to be "involved" in a contravention of the FWA, you must have had knowledge of the essential facts constituting the contravention; you must have been knowingly concerned in it; and you must have been an intentional participant in the contravention based on your actual knowledge.

A key point to remember is that you don't even have to know that the actions in question constituted a contravention for you to be legally considered "involved" in that contravention.

You are more likely to be "involved" in a contravention if you are involved in the day-to-day operations of the employer and have a higher degree of control. However, you need not hold any special or senior position - anyone can be liable.

On Friday, 27 May 2016, the FWO spoke about its increasing focus on accessorial liability stating:

"We are pushing the boundaries of the accessorial liability provisions contained in the FW Act. This is how Coles ended up in court. So far this financial year nearly every matter we have filed in court— 94% in fact—has also roped in an accessory.

We are increasingly pursuing a broader range of accessories, including accountants and human resources managers."

Section 550 allows the FWO to seek to recoup back payments and penalties from:

  • the beneficiaries of the labour accountable for exploitation of their contractors' and subcontractors' workers; and
  • individuals involved in the breach irrespective of whether the corporate employer is still operative, or has money in the bank.

Up until recently, directors were pursued as accessories, however, they now include human resources staff, admin managers, staff in recruitment and supervision, other companies involved in the supply chain. The FWO will look at the serious and deliberate nature of the conduct involved – lawyers and accountants can also be implicated for advice provided in regards to such arrangements and production of false records.

A range of orders, in addition to penalties and orders for payment by individuals can be sought including:

  • injunctions against future contraventions;
  • freezing orders to prevent the shifting or assets; and
  • orders to compel employers and individuals to commission audits of their entire payroll and training in respect to workplace obligations.

Failure to heed these warnings and turning a blind eye to outsourced work that is performed by another enterprise using contractors on below-award rates of pay may expose organisations and individuals up the procurement chain to significant liability and risks.

Therefore, the outsourcing relationship must be pro-actively and appropriately developed by:

  • evaluating whether outsourcing is a viable strategy for the organisation given goals and objectives;
  • analysing and assessing information on services outsourced and service deliverables;
  • selecting the appropriate vendor including:
    • examining the business operations proposed by the contractor;
    • assessing whether the contractor will be able to deliver the services on the terms proposed and in a manner consistent with the FWA;
    • imposing appropriate controls over further delegation, or subcontracting any of the serviced to be performed; and
    • taking appropriate warranties from service providers in relation to their industrial compliance;
  • securing a contract that protects the organisation yet is flexible enough to accommodate unplanned events;
  • developing a transition plan for transferring outsourced activities to the vendor;
  • establishing and executing an effective governance structure and embarking on appropriate audit activity, supported by relevant contractual rights.; and
  • developing guidelines for reappointment of the subcontractor.

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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