Australia: Cops and robbers in the Fair Work economy - Are regulatory authorities barking up the wrong tree?

Despite the existence of a national framework of minimum entitlements for employees, there is still a strong distinction between workers' rights and workers' reality. This is particularly the case amongst vulnerable employees. While much political attention is devoted to the legislative provision of rights, enforcement of these rights is perhaps more relevant. Two Commonwealth agencies are the primary stakeholders in employer compliance. The Australian Taxation Office are responsible for enforcement of PAYG tax, FBT, and Superannuation; while the Office of the Fair Work Ombudsman (FWO) is entrusted to enforce the minimum entitlements provided by the Fair Work Act and the Modern Awards.

The majority of enforcement action still arises as a direct result of employee complaints, as gathering other information cost effectively is a challenge for agencies. The agencies share memoranda of understanding with each other, other commonwealth agencies, and many of the large employer organisations. Both agencies also conduct random audits, based on data provided by employers. The upcoming introduction of 'single touch payroll' measures aim to use technological integration with employers to ensure enforcement. These each provide valuable investigative opportunities.

What the overall system lacks, is an effective mechanism for detecting cash.

The "black economy" in Australia is booming, with some estimates valuing it at $15 billion. A large component of this economy exists within in the hospitality and retail industries, who collect cash from customers, and pass some of it on to their employees "cash in hand". These off the book payments are often made not only with the intent to avoid paying tax and superannuation, but to grossly underpay employees. These employers are often not known to the ATO, to FWO, or the employer organisations. Significantly, employees in this situation are typically vulnerable. Those who even understand or suspect that the practice is wrong, generally believe themselves to be complicit in the wrongdoing, and rarely complain to the authorities.

Employers in cash rich industries such as hospitality and retail, who intentionally intend to exploit workers, evade tax, and mislead the government, have very little incentive to be 'partially' compliant. There is no practical benefit to complying with one Commonwealth regime, merely to disregard another. By far the easiest way to conceal your activity from FWO, is to concurrently conceal your activity from the ATO. In the extreme examples such as the 7-eleven cases, employers may declare the actual employment to the ATO, but simply falsify the records, relying upon employee vulnerability and coercion to avoid detection.

It follows, therefore, as a question of logic, that those employers who are at least cooperating with the ATO, and honestly declaring their employees' wages and tax, are fundamentally less culpable for breaches of the Fair Work Act. In this situation, non-compliance is generally a product of employers' ignorance or lack of understanding of the complex framework of obligations. Most of the time employers in this category are merely careless, at worst reckless, to their obligations. Very few, in my opinion, are proactively or intentionally non-compliant.

FWO's mandate under the act is to promote a 'productive, harmonious cooperative workplace', as well as compliance with the act and other fair work instruments. The responsibilities are three-fold: to provide education, assistance, and guidance to employees and employers; to investigate; and to bring litigation against employers in order to seek civil penalties. Where this overlaps, and which approach is taken, appears to be at the discretion of FWO, on a case by case basis. The FWO's Litigation Policy provides that there is a two-step process in place when deciding to litigate. Firstly, there must be sufficient evidence to prosecute the case. Secondly, to commence proceedings must be in the public interest. Clearly, the 'educative' face of FWO's mandate can be used to determine which employers should be investigated, as a method of collecting evidence, and ultimately informing the decision over whether public interest is engaged. Like any 'good cop / bad cop' move, the results are efficient.

This efficiency, however, creates an odd situation where the real "bad guys" are largely not pursued due to lack of evidence, or other inherent difficulties in bringing prosecutions. Meanwhile, those who are clearly mostly ignorant, careless, or reckless to their responsibilities, make it all too easy.

A further factor complicates the role of the enforcer. Like all commonwealth agencies, FWO and ATO do not have infinite resources. They are held to account for their funding, and need to choose the right battles to fight. Current Fair Work Ombudsman Natalie James is on record indicating that litigation decisions are made strategically, with reference to FWO's particular short term political and social objectives, and most notably, by the employers' capacity to pay penalties. This further factor not only complicates FWO's ability to objectively perform their statutory mandate, but makes this 'middle ground' offender, a particularly attractive target.

The Way Forward

Litigation is both time consuming and costly. As private law practitioners we are told, ad nauseam, that prevention is better than cure, and that a litigious approach to most matters is positively irresponsible. It's perhaps time our Commonwealth agencies were held to the same standard. Contraventions of the Fair Work Act resulting in litigation, should be reserved for only the objectively most culpable offenders. There should be no other criteria.

Exposing the worst offenders will only be achieved by the eventual transition to a cashless society. The 2015 Westpac Cash Free report predicts that Australia would be cash free by 2022. In addition, later this year the New Payments Platform will be launched which will allow Australians to send money to another person or business in real-time. The receiver of the payment will be able to be identified by an email address, telephone number or in the case of a business, by their ABN. In the coming years as we potentially transition to a cashless society, it will be interesting to note the effect these changes will have on the intentional 'bad guys', who may find it more difficult to actively dodge their obligations to the Commonwealth. The role of the enforcer may take on some clarity.

Finally, FWO's complex mandate needs to be properly allocated to at least two different agencies. To the extent that the fair work system needs an adversarial face, this face should be unmasked at all times. Procedural fairness dictates it – whether one is a 'bad guy' or not.

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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