Australia: Fair Work Ombudsman focusing on entire labour supply chains involved in worker exploitation

Last Updated: 4 December 2016
Article by Maree Skinner and Mei-Lim Smith
Services: Banking & Finance, Competition & Consumer Law, Corporate & Commercial, Dispute Resolution & Litigation, People & Workplace
Industry Focus: Financial Services, Insurance, Life Sciences & Healthcare, Property

What you need to know

  • Australia's Fair Work Ombudsman (FWO) has indicated it is looking beyond the direct employment relationship when holding parties accountable for the exploitation of vulnerable workers, sharpening its focus on businesses at all levels of the labour supply chain.
  • There is a low threshold for a party to be considered 'involved in' the exploitation of a worker under the accessorial liability provisions of the Fair Work Act, which means that those who turn a blind eye or fail to ask enough questions could be at risk.
  • Businesses that rely on outsourcing arrangements should carefully consider their exposure and take steps to minimise the risk of vulnerable worker exploitation arising under their watch.

The exploitation of vulnerable workers in Australia has become a hot topic in recent months, attracting a significant amount of mainstream media attention. The issue has also come under the microscope of the Fair Work Ombudsman (FWO), which has warned it will target all parties involved in a worker's exploitation regardless of whether a direct employment relationship exists.

With hefty penalties applicable to those who are held responsible for a worker's exploitation, every business should be turning a keen eye to the treatment of all workers.

FWO's focus extends to full labour supply chain

Over the past month, the FWO has issued clear indications that it is seeking to push the boundaries in its use of the accessorial liability provisions of the Fair Work Act 2009 (Cth) (Fair Work Act) to ensure that all those who are involved in, or who benefit from, the exploitation of vulnerable workers will be held accountable for the role they play in breaches of workplace laws. In addition to the direct employer of an exploited worker, those who may be held responsible include

  • the head of a labour supply chain
  • all downstream operators in a supply chain including those involved in an outsourcing, contracting or labour hire arrangement
  • those involved in a franchise network, with franchise arrangements clearly in the Ombudsman's sights.

This new approach to expanding the boundaries of the accessorial liability provisions comes in the wake of the inquiry into systemic underpayments within the 7-Eleven franchise network earlier this year, with the FWO noting that:

"What we find in practice, within supply chains and networks like franchising systems, is that there is often someone at the top or the centre of the network who - while not the employer - controls key settings, including how much money is being paid down the line. It is our standard practice to ask who is the ultimate beneficiary of exploited labour and what role have they played in what has occurred."1

It also follows the FWO's recent announcement that it will be launching a new inquiry into the labour procurement and supply chain practices of a range of charities. The FWO has indicated that charities will be held accountable for contraventions committed by the specialist companies to which they outsource their fundraising activities, even if poor governance arrangements mean they are unaware that breaches have occurred. As it is relatively common for charities to rely on specialist companies to carry out their fundraising activities, and those specialist companies may:

  • unlawfully pay their charity collectors on a commission-only basis; or
  • engage charity collectors through unpaid internships or sham contracting arrangements

This is a live issue that should be on the radar of every charity using outsourcing arrangements.

Accessorial liability under the Fair Work Act

Under section 550 of the Fair Work Act, anyone 'involved' in a breach of the Act can be held personally liable as an accessory for the breach. Those found liable may be subject to civil penalties and orders to pay compensation for loss suffered as a result of a breach.

The FWO has successfully used this provision to institute proceedings not only against individuals working within the employing entity that has underpaid its employees, but also against other companies and individuals which it considers to be complicit in the underpayment through the broader supply chain or franchise network.

The FWO's reliance on these provisions has already resulted in successful prosecutions for underpayment against head franchisors and companies that have contracted or outsourced services to another entity, as well as their individual directors, line managers, human resource staff and other advisors.

The ramifications of being found liable as an accessory under the Fair Work Act are significant. Financial penalties are currently set at a maximum of $54,000 per breach for companies and $10,800 per breach for individuals.

Under the Fair Work Act a person will be 'involved' in a contravention if the person has:

  • aided, abetted, counselled or procured the contravention
  • induced the contravention
  • been, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention
  • conspired with others to effect the contravention.

The threshold for a person to be 'involved' in a contravention is not high. To attract accessorial liability, the company or individual only needs to have knowledge of the essential facts constituting the contravention rather than actual knowledge that a breach of the Fair Work Act has occurred.

Consequentially, a company or individual who is part of a broader supply chain could be liable for a worker's underpayment if the company or individual ignored the fact that contracts were awarded at prices where it would be very difficult, if not impossible, for the employing entity to meet the lawful minimum labour costs of performing the work.

Protecting yourself from accessorial liability

It is clear that a business can be liable for the underpayment of workers it did not directly employ, and the FWO will be looking more closely at each entity in a supply chain where worker exploitation arises.

For every business relying on labour outsourcing or similar arrangements, the critical questions to ask is: what steps can I take to minimise the risk of my business being found to be an accessory to another's unlawful practices?

  1. Know your responsibilities
  2. It is critical to understand that your business has responsibility for the treatment of workers undertaking work on your behalf and you cannot simply outsource or contract to the lowest cost provider without regard for that provider's labour practices.

  1. Manage your risk
  2. Controls and procedures should be implemented to manage your risk. While the specific measures and controls to be adopted will depend on the nature and scale of the business, these may include:

    1. reviewing outsourcing and contracting arrangements in the labour supply network to consider whether procurement processes and the structure of the supply chain might encourage the underpayment of workers
    2. imposing contractual obligations on contractors, labour hire companies and franchisees requiring compliance with applicable laws and minimum wage obligations both for themselves and for any contractors they engage
    3. questioning labour costs which appear lower than what is reasonable
    4. undertaking due diligence to make sure that contracted payments are reasonably able to cover the entitlements of the workers who will deliver the work
    5. conducting random audits to ensure other parties such as contractors, suppliers and franchisees are paying their workers appropriately
    6. providing training and guidance on wages obligations.
  1. Be prepared to take action
  2. If you spot a potential problem in your supply chain, don't ignore it. It is important to seek advice on how your risk should be managed and how the problem should be addressed.


1'Getting ahead of the curve on franchise regulation', Opening remarks - Keynote Panel Session, National Franchise Convention 2016, Natalie James, Fair Work Ombudsman, 10 October 2016

This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article. Authors listed may not be admitted in all states and territories

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Mei-Lim Smith
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