Australia: The new Protecting Vulnerable Workers legislation – what does it mean for employers, franchisors and holding companies

Last Updated: 15 September 2017
Article by Declan Johnston and Natasha Jones

Most Read Contributor in Australia, August 2018

There have been dramatic changes made to the Fair Work Act 2009 (Cth) (FW Act) this month with both Houses of the Federal Parliament passing the Fair Work Amendment (Protecting Vulnerable Workers) Bill (the Bill).

The Bill, which was introduced in March this year, has been refined since our first coverage in March 2017. The Bill's amendments to the FW Act are said to deter unlawful practices and end the 'systematic and deliberate exploitation of workers' by:

  • introducing a new 'serious contravention' penalty
  • imposing higher penalties for failing to keep wage records
  • imposing liability on franchisors and holding companies with significant control over franchisees or subsidiaries
  • introduce new compulsive powers for the Fair Work Ombudsman (FWO) to gather evidence
  • shifting the onus of proof onto employers for certain FW Act proceedings where employers have failed to maintain employee records and make these available for inspection
  • prohibiting unlawful cashback or deduction practices.

All employers, franchisors and holding companies should take note of the amendments which will, for the most part, come into force upon receiving royal assent, with the exception being the new franchisor and holding company liability provisions, which will take effect 6 weeks after assent.

We set out these amendments to the FW Act in further detail in the following sections.

  1. Introduce harsher penalties for contraventions and serious contraventions of certain workplace laws

    The new 'serious contravention' penalties will apply where there is a knowing systematic pattern of contravening conduct in respect of certain civil remedy provisions. The penalties for a standard 'once-off' breach of those civil remedy provisions will also double. The civil remedy provisions which will be affected by the new penalties are set out in the table below.

    FW Act civil remedy provisio Contravention
    Section 45 Contravention of a term of a modern award
    Section 50 Contravention of a term of an enterprise agreement
    Section 280 Contravention of a workplace determination
    Section 293 Contravention of a term of a national minimum wage order
    Section 305 Contravention of an equal remuneration order
    Section 323(1) Contravention of the manner of payment from an employer to employee for performance of work
    Section 323(3) Contravention of the manner of payment required under a modern award of enterprise agreement
    Section 325(1) Employer requests an employee to directly or indirectly spend any part of an amount payable to the employee in relation to the performance of work when the requirement is unreasonable
    Section 328(1) Contravention of employer's guarantee of annual earnings to an employee
    Section 328(2) Contravention of employer's requirement to comply with guarantee of annual earnings for the period before termination
    Section 328(3) Contravention of employer's requirement to notify the employee in writing that a modern award will not apply to the employee during any period during which the annual rate of the guarantee of annual earnings exceeds the high income threshold. Employers are required to provide this notice before or at the time of giving the guarantee
    Section 535(1)-(2) Contravention of employer's requirement to make, and keep for 7 years, employee records prescribed by regulations
    Section 536(1) Contravention of employer's requirement to provide employees with pay slips one within one day of payment
    Section 536(2) Contravention of employer's requirement to provide pay slip in the form prescribed by regulations
    Whether the conduct is part of a systematic pattern will be determined by reference to:

    • the number of contraventions
    • the period of time during which the contraventions took place
    • the number of people affected by the contraventions
    • the response or failure to respond to any complaints made about the contraventions
    • whether there was a failure to keep records or provide payslips relevant to the conduct.

    The increased penalties are designed to deter employers who have previously been prepared to treat the penalties under the FW Act as an acceptable cost of doing business. Parties who breach these provisions will risk receiving a maximum fine of $12,600 for a standard breach or $126,000 for breach of the new 'serious contravention' provisions. These penalties may be in addition to any other remedy ordered.

    The new 'serious contravention' provisions also extends accessorial liability under Section 550 of the FW Act. Under the new provisions, a person (the Accessory) will be exposed to accessorial liability for the serious contravention of another person (the Principal) in circumstances where there is a finding of a serious contravention by the Principal and the Accessory knew that the contravention was a serious contravention. For example, we have previously seen in the Federal Court a payroll officer held to be an accessory to an employer's breaches under section 550 of the FW Act, where a payroll officer processed employee pay well below the minimum monetary entitlements under the relevant modern award. The new serious contravention provisions mean that, in similar circumstances, if the Principal's conduct was part of a systemic pattern of conduct, an Accessory would be liable for a serious contravention and greater penalties as an Accessory, if they had knowledge that the contravention is a serious contravention.

  2. Increase the penalties for employers who fail to keep adequate records under section 535 of the FW Act

    For parties who are found to be in breach these new provisions, the penalty has increased to a maximum penalty of $12,600 for a standard breach or $126,000 in the case of a serious contravention.

    These new penalties are also intended to deter employers from falsifying records to disguise underpayments. This is because previously employers deliberately falsified payments to give the impression their workers were being paid their lawful entitlements.

    As this provision applies to employers it will affect all businesses, not just franchisees.

  3. Make franchisors and holding companies responsible for contraventions by franchisees or subsidiaries

    Under the new provisions, holding companies and franchisors who have a significant degree of control or influence over a franchisee's affairs will no longer be able to turn a blind eye to exploitation.

    Franchisors and holding companies will be held responsible for certain contraventions by their franchisees or subsidiaries where they know or ought to have known of the contraventions and failed to prevent them. In the case of franchisors, these new provisions will only apply to the extent that the franchisor has a significant degree of control over the franchisee. The phrase 'significant degree of control' is intended to cover franchisors and holding companies who are significantly involved in the franchisee's financial, operational and corporate affairs.

    As discussed in our last article, an objective test, taking into account the franchisor's knowledge, experience and acumen is used to determine what the franchisor knew or ought to have known. For example, it may be enough if a franchisor was aware of a series of complaints against a franchisee regarding underpayments.

    However, franchisors and holding companies will be able to avoid liability for contraventions of franchisees or subsidiaries if they can demonstrate that they had taken reasonable steps to prevent a contravention of the same or similar character.

    Reasonable steps will vary from business to business, however, in assessing what steps your business should take, your business should have regard to:

    • the size and resources of your business
    • the extent of influence your business has over the conduct of your subsidiaries or franchisees
    • you businesses' arrangements for assessing whether your subsidiary or franchisee is complying with its obligations under the FW Act and workplace laws
    • your business' actions toward ensuring that your franchisee or subsidiary has knowledge and understanding of its obligations under the FW Act and other workplace laws
    • your arrangements for addressing complaints about alleged underpayments or other contraventions under the FW Act and other workplace laws
    • the extent to which your business' arrangements encourage or require your subsidiaries or franchisees to comply with the FW Act and any other workplace laws.

    Reasonable steps encouraged by the FWO include:

    • Developing internal tools and processes to support compliance. As a franchisor you can provide franchisees with compliance templates or a centralised time keeping and payroll system.
    • Developing a recruitment policy where franchisors recruit and train franchisees who are committed to compliance.
    • Creating a legal framework that enables compliance. Franchisors can ensure their franchise agreement complies with workplace laws. Additionally franchisors can ensure their business model takes into account the costs of lawfully employing adequate numbers of staff.

    The amendments will not apply to franchisors who operate completely outside of Australia. Compliance is only required for Australian companies operating within Australia.

  4. Strengthen the evidence gathering powers of the Fair Work Ombudsman

    Subject to Administrative Appeals Tribunal (AAT) approval, the FWO may issue an FWO notice which will require a person to give information, produce documents or attend before the FWO for questioning if the FWO believes on reasonable grounds that a person has information or documents relating to an FWO investigation into a contravention of the FW Act. The investigatory powers will extend to contraventions involving not only matters relating to underpayments, but also unfair dismissals, general protections and unlawful discrimination in relation to employment. It is important to note that these investigation powers will not just apply to franchisors and holding companies, but to all employers.

    This is a very significant change from the earlier position where the FWO could only issue a notice for production of documents and not compel anyone to answer their questions. Previously, a right to silence existed and it will be important to monitor how this law is applied.

    The FWO's new investigation powers will be overseen by the AAT and reviewed by the Commonwealth Ombudsman. It is likely that these new powers will be tested through the AAT and Ombudsman in the first few years.

  5. Shifting the onus of proof to employers in certain FW Act proceedings

    The new provisions shift the onus of proof from an applicant to an employer in proceedings for certain contraventions of civil remedy provisions under the FW Act. This will apply in circumstances where an employer has failed, under section 535 of the FW Act, to maintain employee records and then fails to make these available for inspection by an employee. The civil remedy provisions affected by the new reverse onus of proof include:

    FW Act civil remedy provision Contravention
    Section 45 Contravention of a term of a modern award
    Section 50 Contravention of a term of an enterprise agreement
    Section 280 Contravention of a workplace determination
    Section 293 Contravention of a term of a national minimum wage order
    Section 305 Contravention of an equal remuneration order
    Section 323(1) Contravention of the manner of payment from an employer to employee for performance of work
    Section 323(3) Contravention of the manner of payment required under a modern award of enterprise agreement
    Section 325(1) Employer requests an employee to directly or indirectly spend any part of an amount payable to the employee in relation to the performance of work when the requirement is unreasonable

    This will now mean that in claims for unpaid wages where an employer has not produced wage slips or employment record, if the employee makes a claim that they have been underpaid, the employer has to prove that they have paid the employee correctly.

  6. Strengthen the prohibition on employers unreasonably requiring employees to make payments

    The amendments strengthen the existing prohibition on employers unreasonably requiring employees to spend amounts which are payable to the employee. The amendments make clear that the prohibition applies to any unreasonable requirement for an employee to make payments from the employee's money or an amount payable to the employee which is for the employer's direct or indirect benefit.

    The amended prohibitions also extend to any similar unreasonable requirements for a prospective employee to make payments for the direct or indirect benefit of a prospective employer. These amendments target 'cashback' practices, where an employee is required to pay back to their employer a portion of their paid wages. These practices were most notably identified in the FWO's 7Eleven Inquiry into the systemic non-compliance of employers in the 7Eleven franchise network. In that investigation, the FWO identified cashback schemes as one of the mechanisms utilised by employers to disguise underpayment of wages. Specifically, an employer would accurately issue a payslip and payment of wages, but later require employees to pay back a portion of their wages.

    Considerations for employers, franchisors and holding companies

    When in force, the greater investigation powers and the extension of liability will increase the chance of a FWO prosecution and liability under the FW Act. This, together with the increasing penalties, should encourage employers, franchisors and holding companies to look to:

    • review their business' compliance with its record keeping obligations under section 535 of the Fair Work Act and Part 3.6, Division 3 of the Fair Work Regulations 2009; and
    • ensure, as a franchisor or holding company, that their business is taking reasonable steps to prevent contraventions of the FW Act. By taking reasonable steps to ensure that franchisees and subsidiaries are complying with the FW Act, franchisors and holding companies will also limit their liability for the contraventions of franchisees and subsidiaries who flagrantly breach their obligations under the FW Act.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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