Australia: Engaging with the workplace cop

Last Updated: 22 June 2017
Article by Dominic Russell

The Fair Work Ombudsman (FWO) has, over the last couple of years, developed a reputation as being more than just an industrial watchdog, but a cop on the beat.

The aggressive rhetoric coming from the office of the FWO, coupled with news of six-figure penalties against companies, and fines being issued to directors and managers for non-compliance with their obligations under the Fair Work Act have given many Australian businesses cause for alarm.

What are the key risks and what should a business do in the face of an investigation by the FWO?

The consequences of breaching minimum employment standards can be disastrous but the consequences of obstructing an investigation by the FWO can be worse.

Recently, a café in Albury and its owner were collectively issued penalties of $532,000 for systemic breaches of the Fair Work Act in relation to its five employees. In his decision in the Federal Circuit Court, Judge Altobelli examined the conduct of the company and the owner during the investigation process and found evidence the company had fabricated business records and, despite admitting to the underpayments 12 months previously, had failed to remedy various breaches that had occurred.

In contrast, in April this year a Queensland agricultural company and its managing director were collectively penalised $130,000, despite being found guilty of systemic breaches across six broad classes of contraventions, including substantial underpayments. In his decision, Judge Vasta also examined the conduct of the company and the owner during the investigation process and found that upon being made aware of the potential breaches, the company promptly "engaged reputable solicitors" and put in place "appropriate checks and balances... to ensure... compliance under the FW Act." As a result of the company's cooperation and response to the FWO investigation, Judge Vasta applied a 20% discount on the maximum penalties that might otherwise have been payable.

Companies under investigation by the FWO also risk significant reputational damage, both to themselves, as well as companies that form part of the supply chain. In the case of franchises, the reputational harm may extend to all businesses within the franchise.

Woolworths was recently subjected to negative media due to an investigation by the FWO into trolley collection contractors it had engaged. The trolley collection contractors were found to have been paying workers as little as $10 an hour. During the investigations, Woolworths was heavily criticised by the FWO for essentially distancing themselves from the problem and shifting blame onto the contractors.

In another case, Caltex went onto the front foot, establishing a $20m fund for settling underpayment claims for workers at its franchises and conducting its own audit into the compliance of its franchisees. As a result of this, Caltex was in a position to self-report breaches uncovered by their audit, which assisted the FWO in its investigation

The key lesson businesses should take from these cases is that when faced with investigation by the FWO; cooperation, transparency and pro-activeness (not to mention engaging reputable solicitors) will go a long way towards reducing exposure to penalties and reputational damage.

So, what preventative or 'proactive' steps can franchises, franchisees and other businesses take to minimise their risks from a FWO audit?

In the present climate, businesses must take reasonable steps to prevent non-compliance with award conditions and statutory obligations under the Fair Work Act. We have previously written about a Bill currently before Parliament, which if passed, will extend liability for breaches of the Fair Work Act to franchise holding companies, as well as increasing the investigative powers of the FWO.

In addition to making the FWO a quasi-industrial regulator, the Bill also offers fairly concrete guidance on what it means to take "reasonable steps" to prevent contraventions. For franchises, this can include:

  • ensuring that franchisees and employees are given guidance on their rights and obligations under workplace laws and any relevant awards;
  • monitoring and applying changes to minimum wages and other award entitlements (usually coming into effect from 1 July each year);
  • conducting regular audits of work rosters, payroll and maintenance of employee records; and,
  • putting a process in place for workers to raise concerns about underpayments or other working conditions.

It may come as a surprise to learn that one of the prescribed functions of the FWO is "to promote harmonious, productive and cooperative workplace relations." It follows from this that any business that implements sound practices and procedures that are aligned with this mission statement should be well placed in the event that the FWO comes knocking.

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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Dominic Russell
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