The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (“The Bill”) has passed the Parliament, after the House of Representatives yesterday accepted amendments made in the Senate. The new law will apply from the day after the Bill receives royal assent, except for the new franchisor and holding company liability provisions (discussed below) which will start six weeks later.
The Bill was introduced as a response to the underpayments and exploitation of vulnerable workers within some of the 7/11 franchisees as well as similar subsequent scandals with Caltex, Yogurberry, Pizza Hut and Dominos. The Bill will introduce a number of initiatives to increase deterrence and punishments in relation to systematic exploitation of vulnerable workers. It also strengthens the power of the workplace regulator, the Fair Work Ombudsman.
The Bill will amend the current Fair Work Act 2009 (Cth) (“FWA”) and will include the following features:
- Introducing a higher scale of penalties for ‘serious contraventions’ of prescribed workplace laws.
- Increasing penalties for record-keeping failures.
- Making franchisors and holding companies responsible for underpayments by their franchisees or subsidiaries where they knew or ought reasonably to have known of the contraventions and failed to take reasonable steps to prevent them.
- Expressly prohibiting employers from unreasonably requiring their employees to make payments (e.g. demanding a proportion of their wages be paid back in cash).
- Strengthening the evidence-gathering powers of the Fair Work Ombudsman (“FWO”) to ensure that the exploitation of vulnerable workers can be effectively investigated.
Introducing a higher scale of penalties for ‘serious contraventions’ of prescribed workplace laws
The Bill will substantially increase the maximum civil penalties that apply for ‘serious contraventions’ of the FWA. This is where an employer is found to be engaged in a systematic and deliberate pattern of conduct that undermines the FWA. In such cases, the maximum penalties for serious contraventions will increase to $630,000 for body corporates and $126,000 for individuals.
Increasing penalties for record-keeping failures
The new law will double the maximum penalties for record-keeping and pay slip breaches, to $12,600 per contravention for individuals and $63,000 for companies, and triple existing penalties for cases where employers give false or misleading pay slips to workers, or provide the FWO with false information or documents. The explanatory memorandum recognised the importance of proper record-keeping in determining compliance under the FWA. It is interesting to note that last financial year two-thirds of the FWO’s prosecutions involved alleged record-keeping or payslip contraventions.
Making franchisors and holding companies responsible for underpayments by their franchisees or subsidiaries where they knew or ought to have known of the contraventions and failed to take reasonable steps to prevent them.
Under existing laws, a person may be held responsible for being ‘involved in’ a contravention, even if they are not the direct employer. The current accessorial liability provisions however, require that the individual or company had knowledge of the contraventions and was “involved in” the contraventions. These provisions have no application and thus, there is no accessorial liability if a person genuinely ‘did not know’ about the contravention.
The new provisions will hold franchisors and holding companies responsible for certain contraventions of the FWA by businesses in their networks if they knew or could reasonably be expected to have known that the contravention would occur, or that contraventions of the same or a similar character were likely to occur and they had significant influence or control over the companies in their network. This means that the responsible franchisor does not require actual knowledge of contraventions by franchisees. In order to attract liability, it would be enough if the franchisor was reasonably expected to have known about the contraventions.
The explanatory memorandum clarified that the changes are aimed at franchisors and holding companies that have established agreements and subsidiaries in their corporate structure that operate on a business model based on underpaying workers. In particular, some of these franchisors and holding companies have either been blind to the problem or not taken sufficient action to deal with it once it was brought to their attention. The new responsibilities will only apply where franchisors and holding companies have a significant degree of influence or control over their business networks.
The franchisor or the holding company will not be taken to have contravened the provisions if it had taken reasonable steps to prevent the kind of contraventions which occurred. The requirement to take reasonable steps is a requirement to take steps that would be reasonable in the circumstances. The FWO website identifies a number of practical steps franchisors and holding companies can take in order to assist in understanding and meeting their obligations.
Expressly prohibiting employers from unreasonably requiring their employees to make payments (e.g. demanding a proportion of their wages be paid back in cash).
The Bill will amend the FWA to expressly prohibit employers from directly or indirectly requiring an employee to give ‘cashback’ or pay any other amount of the employee’s money, or the whole or any part of an amount payable to the employee, in relation to the performance of work (whether to the employer or another person). The maximum penalty for a contravention under this amendment will be $126,000 for individuals and $630,000 for corporations. This amendment follows a number of shocking revelations where it was found that certain companies had been demanding employees return a portion of their wages under the threat of losing their job or breaching their visa. Many of these workers had limited English and/or were employed on work visas. However, this provision may also affect those employers who require employees to buy their clothing (for example) in order to work in their stores.
Strengthening the evidence-gathering powers of the Fair Work Ombudsman to ensure that the exploitation of vulnerable workers can be effectively investigated.
The amendments will grant the FWO new evidence gathering powers similar to those already available to corporate regulators such as ACCC and ASIC.
The FWO will be able to issue a “FWO notice” to any person the FWO believes may have information relating to an investigation or is capable of giving evidence relevant to the investigation. Under the notice, a person may be required to give information, produce documents, or attend before the FWO to answer questions. There will be a number of safeguards in place to ensure these powers are exercised in a fair and consistent manner.
There are penalties associated with a failure to comply with a FWO notice.
Across Australia, there has also been an increase focus on labour hire companies, which commonly employ migrant workers to work in low paying positions. In response, a number of Australian States are looking at introducing legislation which will require labour hire companies to obtain a licence and demonstrate compliance with Work Health and Safety laws, workers compensation and other employment laws.
These initiatives have come about after a series of enforcement actions by the FWO against labour hire companies found to be exploiting migrant workers. In particular, the FWO instigated a national inquiry into exploitation of overseas workers on Australian farms, after a Queensland labour hire operator was severely penalised for underpaying 144 employees. The FWO were also recently successful in penalising a NSW cleaning company where the FWO successful argued that the company was treating their migrant workers as “slaves” under questionable labour hire arrangements. The company received a penalty of $370,000 and ordered to back pay $222,244 to 49 employees. The individuals with control of the company were also personally penalised.
LESSONS FOR EMPLOYERS
Given the far reaching implications of this Bill, all franchisors and holding companies are advised to take immediate proactive steps to address any non-compliance within their network. Furthermore, in light of the FWO’s tough stance on ensuring businesses are complying with their obligations, we encourage all business including business that use labour hire agencies to also take steps to ensure they are meeting their legal obligations as well as the labour hire agency. In this regard, we have outlined some key steps to assist businesses to address any non-compliance:
- Complete a thorough audit on your business and/or associated businesses, subsidiaries and network;
- Review Franchise Agreements or provisions which may encourage or assist franchisees to circumvent their workplace law obligations;
- Review Franchise Agreements to ensure it contains provisions requiring franchisees to behave appropriately and pay their employees in accordance with legal requirements;
- Conduct appropriate due diligence and reviews in relation to engaging employees from a labour hire agency including ensuring the wages paid for the labour hire employees are sufficient to discharge the required liabilities;
- Review all wages to ensure any employees within your network are being paid correctly including any overtime, superannuation and penalty rates owed to them;
- Establish practical steps and processes to allow employees within the business network to report any potential underpayment to the business;
- Ensure there is adequate and regular training for franchisees, directors, business owners, managers, team leaders and other relevant personnel;
- Review all current record keeping procedures and process for employees including the record keeping of wages, superannuation, annual leave, personal leave and ensure employees are receiving payslips with the required information set out by the FWA; and
- Ensure FWA compliance is a standing item on the Board Meeting agenda.
If you or your business partners would like any assistance with regard to ensuring your workplace compliance, including conducting the relevant workplace and record keeping audits, please do not hesitate to contact us.
This alert is not intended to constitute, and should not be treated as, legal advice.