Employer Insights: Vulnerable Workers | Employment Law

Professional Advisors, Employers & Franchisors - Worker Protections Significantly Strengthened

• On 15 September 2017 the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (Cth) (the Act) came into force.
• The Act amends the Fair Work Act 2009 (FW Act) by providing significantly greater protections for vulnerable workers and employees generally.
• The changes affect all private sector employers, and will have a particular impact on franchisors.
• The changes further emphasise the importance of those potentially "involved" in FW Act compliance, ensuring that they are across minimum employment standards.

Key Changes

Critical changes to the FW Act have arrived with little fanfare, which is surprising given the significant impact that these changes will have on employers and franchisors.

The Act has (and will) introduce changes that:

• increase the penalties for certain serious contraventions of the FW Act
• hold franchisors and holding companies responsible for underpayments by their franchisees or subsidiaries in circumstances where one of its officers knew, or could reasonably be expected to know, that the contraventions by the franchisee would occur or were likely to occur
• expressly prohibit employers from unreasonably requiring employees to make payments in relation to the performance of work, such as demanding a proportion of wages to be paid back in cash
• provide the Fair Work Ombudsman with stronger evidence gathering powers, including the ability to compel witnesses to provide evidence or documents
• impose new penalties for hindering or obstructing the FWO or an inspector in the performance of their functions or powers, or the giving of false or misleading information or documents
• create a new category of "serious contraventions" which will have significantly higher penalties; and
• increase the penalties for breaches of record keeping and pay slip obligations, and importantly introduce a reverse onus of proof in certain underpayment claims where record keeping is non-compliant.

Why have these changes been made?

The amendments to the FW Act have arisen after increasing attention, by regulators and the media, on actions of employers that are seen to exploit vulnerable workers.

This development arose largely due to the 7-Eleven underpayment dispute in which the Fair Work Ombudsman (FWO) alleged that certain franchisees had adopted a practice whereby employees were, at least on paper, paid the correct wages, but were then forced to pay a certain amount back to their employer, in cash.

More recently, other well known franchises have been under investigation for alleged contraventions of the FW Act.

There can be no doubt that the alleged actions by certain 7 – Eleven franchisees were unlawful, and can and did contravene the existing FW Act. However, the new amendments seek to further clarify and strengthen protections around inappropriate practices such as this.

The amendments also reflect an increasing focus on empowering employees and regulators to "pierce the corporate veil" by looking behind traditional corporate structures (or in this particular case, franchising arrangements) to pursue the individuals and other entities (and not just the "legal employer") who can be said to have been "involved" in contraventions of the FW Act.

This concept, known as accessorial liability, was already contained within section 550 of the FW Act. This section had been used by the FWO to seek to prosecute senior employees or shareholders of an employer (such as HR Managers or owners), and external advisors (such as an external accountant).

However, the concept of accessorial liability, in a general sense, will soon expressly extend to franchisors in certain circumstances.

Concerns for franchisors

The first critical change will provide that a franchisor may be liable for a contravention of the FW Act by one or more of its franchisees if it:

• had significant control or influence over the franchisee
• knew or should have known about the contraventions
• failed to take reasonable steps to prevent the violations

Many franchisors are understandably asking – what does it mean that the franchisor should have known that a franchisee was breaching workplace laws? What does this mean for our existing franchise agreements?

Unfortunately, only time and judicial guidance will answer these questions completely. Best practice in the interim, will be for franchisors to be guided by the existing commentary around section 550 of the FW Act, which addresses both accessorial liability and the requisite "knowledge" that a potential accessory must have had (or intentionally ignored).

As has always been the case, franchisors and employers alike ought to, and must continue to undertake a reasonable level of due diligence, in matters of FW Act compliance.

However, given the complexity (and relative infancy) of this area of the law, if you are a franchisor and have any questions or concerns as to your current systems and processes, we suggest you obtain dedicated advice from a member of our team.

Record keeping and onus of proof

The second critical change introduced by the Act seeks to address the situation whereby unscrupulous employers intentionally fail to keep required employment records.

Simply put, this discourages employers from taking a view that if there are no records of the underpayments or other breaches, then they can potentially avoid liability for those more serious breaches.

Although underpayment decisions in the past have made it clear that an employer cannot benefit from poor record keeping, the FW Act now specifically addresses these concerns by effectively reversing the onus of proof in certain circumstances.

Practically, this is even more reason to ensure compliance in a proactive and well advised manner, rather than having to face or defend increasingly complex underpayment claims.

Serious contraventions

The third critical change involves the increased the penalties for what are now termed "serious contraventions" under the FW Act.

The Act imposes higher penalties for "serious contraventions" of:

• The National Employment Standards
• Modern Awards
• Enterprise Agreements
• Workplace determinations
• National minimum wage orders
• Payment of wages requirements
• Record keeping obligations

Importantly, a "serious contravention" is not so much a brand new offence, but rather a more serious category of an existing contravention.

The FW Act now defines a "serious contravention" as one where the person knowingly contravened the provision and the person's conduct constituting the contraventions was part of a systematic pattern of conduct relating to one or more other persons.

In practical terms, this means that it is very unlikely that an innocent oversight, rectified within a reasonable period, would fall within this category.

It is the latter part of this test, namely that the contraventions need to be categorised as "systematic" which is largely where the element of "seriousness" arises.

A body corporate will be liable for a serious contravention if the body corporate expressly, tacitly or impliedly authorised the contravention.

How this will be proved (or defended) in practice remains to be seen. However, an employer in the firing line in this regard may face significant consequences.

Where a contravention falls within the category of "serious contravention", the penalties have increased tenfold.

The maximum penalty for an individual is 600 penalty units ($126,000), and in the case of a body corporate, 3000 penalty units ($630,000). It is worth noting that this penalty relates to each contravention, meaning that (subject to certain sentencing principles) employers involved in a series of serious contraventions could quite literally be fined millions of dollars.

Consequently, employers, franchisors and their advisors must remain as vigilant as ever to ensure that they remain compliant with the FW Act.

When will the changes take effect?

The bulk of these changes have already occurred, having commenced on 15 September 2017.

However, the changes to ensure that franchisors and holding companies can be held responsible for breaches of workplace laws will apply from Friday, being 27 October 2017.

A change of subject and some positive news...

The employment team is delighted to announce that Marion Williams, our workers compensation specialist, has this week been recognised in Doyle's Guide to the Legal Profession as a leading recommended workers compensation specialist.

Individually and collectively, this now means that our WRES team has been recognised by our peers as leading specialists in all three of our key practice areas – employment, WHS and workers compensation.

We are very grateful for the continued recognition, across our employer practice, in both Best Lawyers of Australia and Doyle's Guide, and could not do it without our clients and referrers. Thank you.

Wallmans Lawyers Contacts

If you have any questions or concerns as to how the changes will affect your business please contact one of our specialist workplace relations, employment and safety practitioners below.