Australia: Protecting vulnerable workers – New legislation expected soon

As foreshadowed in our Client Bulletin in August 2016 ( http://www.codea.com.au/publication/7-elevan-scandal-lessons-employers-individual-managers/), the Fair Work Ombudsman's (FWO) inquiry and report into the 7-Eleven underpayment scandal has resulted in a Bill to significantly amend the Fair Work Act 2009 (Cth), which was presented by the Coalition Government to the House of Representatives on 1 March 2017.

This is one of those rare legislative initiatives in workplace relations law that has attracted widespread support amongst the stakeholders in this area.

This rather uncommon consensus has, without doubt, been enhanced by revelations in recent times that, quite apart from the 7-Eleven organisation, a number of other large retail and food service companies, including Caltex, Yogurberry, Coles and Dominos, have also been involved or complicit in systematic underpayment of some of their most vulnerable workers. And that is not an exhaustive list.

The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 proposes a number of initiatives to put an end to or at least seriously reduce systematic exploitation of vulnerable workers. The main initiatives are to very substantially increase the potential penalties for such misconduct, to expand the accessorial liability provisions of the Fair Work Act ("the FW Act") to holding companies and franchisors, and to extensively increase the investigative powers of the Fair Work Ombudsman.

It is a brutal awakening for not only companies who operate a franchising system or multi-tier employment structure but for every individual and company that employs a staff member. It is true there are aspects of the Bill that are a specific reaction to the 7-Eleven scandal but the Bill undoubtedly broadens the risk of significant penalties for conduct contravening the FW Act to all those involved in the employment of staff , not limited to underpayment of wages (but for example significantly increasing penalties for breaches of record keeping requirements).

Key aspects of the Bill include the following:

Major Increase in Penalties for Serious Contraventions

The Bill has attracted considerable public interest insofar as it seeks to impose liability on franchisors for errant behaviour of their franchisees in their employment of staff.

But of equal and perhaps even greater significance is the major increase in the potential level of penalties for a "serious contravention" of various provisions of the FW Act.

Section 557A creates a new level of potential liability for persons (including bodies corporate) who or which deliberately and systematically contravene provisions of the FW Act relating to employee wages and entitlements. It provides the Court with some guidance as to the factors it might consider when determining if a person's conduct is "part of a systematic pattern of conduct" such as to establish a serious contravention of a civil remedy provision. This non exhaustive list includes the number of contraventions, the period over which the contraventions occurred, the number of people affected and the failure to keep correct records or to issue pay slips.

Under the Bill, the maximum penalty for serious contraventions of these provisions will increase from 60 penalty units ($10,800) to 600 penalty units ($108,000).

However, even if a serious contravention is not found to have occurred, the Court can still find a contravention occurred sufficient to attract a pecuniary penalty order.

Liability of Franchisors

One of the many concerns that arose out of the FWO report on its inquiry into the 7-Eleven scandal was the finding that the franchisor (even though it held a significant degree of influence and control over the guilty franchisees) was not legally responsible for the widespread and systematic breaches of the Act by errant franchisees, as it was not a party to the individual employment contracts to which obligations in the relevant employer attached.

Under the new section 558A, franchisor entities and holding companies may also be found responsible for breaches of the FW Act by its franchisees if:

  1. They had a significant degree of influence and control over the franchisee;
  2. They knew or could reasonably be expected to have known that the contravention would occur; and
  3. They failed to take reasonable steps to prevent the contravention.

A franchisor entity or holding company will be exempt from liability if it took all reasonable steps to prevent the contravention. What "reasonable steps" entails exactly remains to be seen, however Section 558B(4) of the Bill does provide some non-exhaustive guidance on the factors to be taken into consideration when determining that question (such as the size and resources of the franchisor, the extent of the franchisor's ability to influence or control the contravening employer's conduct, action directed to ensuring that the contravening employer knew of the requirements on them by the FW Act, and so forth). .

Increased Penalties for Record Keeping Failures

The Minister for Employment in her Second Reading Speech highlighted the ineffectiveness of the pecuniary penalties as they currently stand, with particular regard to the record keeping obligations of employers. Contraventions of these obligations, including false and misleading records, would attract double the existing maximum penalty units (i.e. up to $10,800 for individuals and up to $54,000 for companies).

Stamping out "Pay Back" Arrangements

One of the features of the 7-Eleven scandal was the practice of some franchisee employers of paying employees correct wages then requiring them to pay back some of those wages in cash to the employer.

The Bill seeks to stamp this out by amending Section 325 of the FW Act to prohibit the practice, and to provide for a penalty of up to 600 penalty units (i.e. $108,000) for contravention of it.

Powers of the Fair Work Ombudsman

In our August 2016 article, we had noted the FWO's push for more extensive investigative powers under any proposed legislation. The Bill proposes to arm the FWO with the power to issue notices on individuals and companies requiring that they provide information or documents and/or answer questions relevant to an investigation before the FWO. The FWO can require this information under oath or affirmation.

The vast majority of companies will already have done their due diligence and have in place systems that use every endeavour to comply with the FW Act.

It is nonetheless a timely reminder for employers to review their practices and management systems to ensure their compliance with their obligations under the FW Act and any relevant modern Awards and Enterprise Agreements, including (and, most importantly) their payroll procedures and record-keeping practices.

The Bill is likely to be supported by the Australian Labor Party and, as at the date of publishing this article, had been submitted to the Senate Education and Employment Legislation Committee for report, which is due on 9 May 2017. It seems likely that the Bill will pass into law quite soon.

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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