Protecting vulnerable workers

Posted by on Nov 30, 2017

As previously discussed, the Court has demonstrated that it is increasingly willing to extend accessorial liability to third parties, including directors, human resource and payroll staff, professional advisors and other companies both up and down the supply chain. The Federal Court has recently continued this trend in Fair Work Ombudsman v NSH North Pty Ltd trading as New Shanghai Charlestown [2017] FCA 1301, by ordering a HR manager to pay a penalty of $21,760 for processing underpayments and falsifying records.

Despite the HR Manager’s lack of qualifications or formal training in HR, Justice Bromich held that she had sufficient capacity to carry out directions from her employer, including creating false records. The HR Manager provided advice to her employer about the relevant Award and the correct pay rates, but continued to process payments below the minimum entitlements. She also played an active role in the creation of false records, knowing the records were false and were being produced to the FWO.

While the HR Manager argued that she was vulnerable to the directions of her employer as a worker on a 457 visa from a non-English speaking background, Judge Bromich was sceptical of “her supposed vulnerability by way of reduced ability to resist participation in an illegal activity”. This was because she was aware that the company had been disobeying the law for over 16 months, and because of her active role in attempting to thwart FWO investigations. Judge Bromich also noted that as a matter of public policy, individuals must be required to put compliance with the law ahead of their personal interests.

This decision comes as FWO has obtained greater powers through the passing of the Fair Work Amendment (Protecting Vulnerable Workers) Bill earlier this year. The amendments concern five key areas:

1.  Harsher penalties for ‘serious contraventions’

Harsher penalties now apply to serious contraventions when the contravention is part of a knowing, systematic pattern of conduct.

Conduct will be determined to be a systematic pattern based depending on the number of contraventions, the periods of time over which these occurred, and how many individuals are affected by the contravention.

Factors to be considered by the Court includes the actions taken by the organisation in response to the contraventions and the quality of record maintenance for payslips relevant to the conduct.

The increased penalties aim to deter employers from ignoring the legislation and considering the risk of penalties as an acceptable cost of doing business. Under the new provisions, breach of serious contraventions can incur a maximum financial penalty of $126,000, and extend to accessorial liability under section 550 of the FWA.

2.  Holding franchisors and companies responsible

Holding companies and franchisors who knew or could reasonably be expected to have known that a contravention by a franchisee entity or subsidiary would occur will now be held responsible, unless they take reasonable steps to prevent a contravention.

In determining whether a person took reasonable steps to prevent a contravention, the court may have regard to:

• the size and resources of the business;

• the ability by the franchisor or holding company to influence or control the franchisee or subsidiary;

• action taken towards ensuring the franchisee or subsidiary understands its obligations under the FW Act; and

• the arrangements in place for assessing compliance and complaints.

These provisions go further than the accessorial liability provisions under s550 of the FW Act, in that imputed knowledge, or what the franchisor or holding company could reasonably expected to have known is sufficient to attract liability.

3.  Record keeping and onus of proof

In circumstances where an employer has failed to maintain employee records and then fails to make these available for inspection to an employee, the onus of proof is now on to the employer to demonstrate that they have paid the employee correctly if there is an underpayment claim.

4.  FWO’s evidence gathering powers

In a significant change, FWO can now compel 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 a FWO investigation.

Importantly, these investigatory powers also extend to contraventions involving unfair dismissals, general protections and unlawful discrimination, and will also apply to holding companies and franchisors.

These new powers will be overseen by the AAT and reviewed by the Commonwealth Ombudsman.

5.  Strengthening prohibitions on unreasonable payment requests by employers

The FW Act now prohibits an employer from requiring cash payments to be made to it from the employee’s money or wages when the expenditure is for the indirect or direct benefit of the employer.

This also applies to cashback schemes, such as where an employer asks their employee to pay back portions of their wages to disguise deliberate wage underpayments.

Key points to remember

These recent amendments, along with the FWO’s demonstrated intention to widen the net of prosecutions for accessorial liability, it is important that employers take steps to reduce their exposure, and that of their employees. As a minimum, we recommend that:

• employers conduct an audit to ensure compliance with their obligations under workplace legislation, in particular the record keeping obligations under the FW Act and Fair Work Regulations 2009 (Cth);

• employers review their contracts with suppliers to ensure they contain adequate safeguards, such as obligations to comply with workplace legislation and provide evidence of compliance, if requested, along with relevant indemnities; and

• franchisors and holding companies identify the scope of the reasonable steps defence for their franchise arrangement/company structure and develop a compliance system accordingly. It is clear that a “one size fits all” approach is inappropriate, and the circumstances of each business will need to be examined to understand what reasonable steps may entail.

Should you have any questions about these amendments or the impact they may have on your business, please contact Melissa Scadden or the team at Justitia.

Melissa Scadden is Partner at Justitia. To view Melissa’s profile, click here.