In brief - Massive fines for serious contraventions

The Federal government's proposed amendment to the Fair Work Act 2009 (Cth) (Act) to address exploitation of workers will, if it becomes law, affect employers, related body corporates, franchisors and franchisees. The proposed changes include increasing pecuniary penalties tenfold for serious contraventions of the Act.

Peter Dutton introduces Fair Work Amendment (Protecting Vulnerable Workers) Bill

On 1 March 2017, Peter Dutton introduced into the House of Representatives a proposed amendment to the Act. In the Second Reading, Mr Dutton contextualised the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (the Bill) by referencing the exploitation of workers in a recent well publicised investigation.
The Bill proposes to introduce into the Act the notion of "serious contraventions" under a new section 557A to apply to "deliberate and systematic" breaches of the Act as distinguished from "genuine mistakes". The Bill increases pecuniary penalties for entities that commit serious contraventions of the Act tenfold to $108,000 for individuals and $540,000 for body corporates.

Serious contravention defined as intentional, part of systematic pattern

The Bill seeks to define a serious contravention as one that is intentional, and part of a systematic pattern relating to one or more individuals. The Bill notes elements that the court may give regard to when assessing whether a systematic pattern exists.  These include the number of contraventions, the period of time over which the contraventions occurred, the number of persons affected, failure to lawfully keep employee records (except where the contravention is the obligation to keep employee records), and failure to lawfully keep pay slip records (except where the contravention is the obligation to keep payslip records). 

Explanatory Memorandum to Protecting Vulnerable Workers Bill provides examples of conduct, differentiates ad hoc or inadvertent conduct

The Explanatory Memorandum to the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (Explanatory Memorandum) differentiates serious contraventions from ad hoc or inadvertent conduct and provides some potential examples of the type of conduct that may evidence serious contraventions.
Further, the Bill details liability for body corporates for serious contraventions by introducing section 557B which states that a contravention of a civil remedy provision by a body corporate is to be considered deliberate, if the body corporate expressly, tacitly or impliedly authorised the contravention. The Explanatory Memorandum expands on this section by suggesting authorisation from a body corporate may be evidenced via a policy, rule, course of conduct or practice that exists within the organisation and notes that a body corporate’s actions must be considered holistically. 
The Explanatory Memorandum refers to rogue senior managers whose actions should not be taken to represent the entirety of the entity in circumstances where the body corporate has undertaken appropriate due diligence.

Franchisees and franchisors to be held responsible for underpayments and sham contracting, among others, accessorial liability extended

The Bill introduces definitions for franchisee entity and responsible franchisor entity through section 558A. A responsible franchisor is a franchisor who has a significant degree of influence or control over the franchisee entity’s affairs. The Bill aims to ensure that franchisees and franchisors are held responsible for a series of contraventions of the Act, including underpayments and sham contracting, which appears to be a clear response to several recent high profile underpayments actions taken by the Fair Work Ombudsman (FWO). The Bill extends accessorial liability to franchisors where they knew, or should have known, contraventions were occurring in one of their franchisees. The Explanatory Memorandum refers the Courts to consider the level of control or influence franchisors have over the way the franchisees operate broadly with reference to management and operational decisions. 
A responsible franchisor may claim exemption in circumstances where it can demonstrate it took reasonable steps to prevent the contravention(s) (or similar contraventions) or there were no reasonable steps it could have taken to prevent the contravention(s). In determining if the steps were reasonable, the courts may have regard to the size of the franchisor, the extent of control it held, actions it took to prevent contraventions, investigations it made to prevent contraventions, the way it addressed complaints about the contraventions, and whether the overall arrangements between the franchisor and the franchisee encourage breaches.

Other minor amendments include increase to some Fair Work Ombudsman powers

The Bill proposes a number of other minor amendments to the Act, including alterations relating to employers forcing employees to repay them money, keeping false records and increasing some powers of the FWO to assist in enforcing the provisions. The Bill also seeks to reduce the right of an alleged contravener to not provide evidence to avoid self-incrimination, while retaining legal professional privilege.

Be aware of and adhere to obligations to employees under the Fair Work Act

It is likely that the ALP will broadly support this Bill. If that proves to be right, it is likely to become law in the near future.
If you are an employer, a related body corporate, a franchisor or a franchisee, these changes—when they become law—will affect the way you conduct your business.  The potential for fines above half a million dollars alongside the FWO's history of pursuing accessories means businesses need to be more vigilant than ever in ensuring that they are aware of their obligations to their employees under the Act.
The changes will require anyone involved in employing individuals to actively ensure that they, or their related entities, are adhering to the Act.

This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2024.

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