the 7 eleven saga - murray procter
TRANSCRIPT
THE 7-ELEVEN SAGA Award Compliance, Underpayment & Penalties
// MURRAY PROCTER, PARTNER
WWW.CLARKEKANN.COM.AU
INTRODUCTION
INTRODUCTION
The 7-Eleven saga
Award compliance and underpayment
Penalties
Cases
Minimising risk
FWO conduct and future implications
THE 7-ELEVEN SAGA
THE 7-ELEVEN SAGA
Commenced in 2008 and still ongoing
Inquiry by FWO uncovered:
Culture of non compliance across franchises
Employees being paid below Award rate
Overtime, evening, weekend and public holiday penalties not
being paid
Payslips not being issued with required details
Inadequate records being kept
THE 7-ELEVEN SAGA
Inquiry by FWO uncovered:
Records were not in a condition that allowed a workplace
inspector to determine whether entitlements had been received
Employers were falsifying records to give the impression of
compliance
Employers engaged in “cash back” arrangements, where they
required employees to return some or all of a wage payment to
them in cash
THE 7-ELEVEN SAGA
Various proceedings issued as a result of findings – some still
ongoing
Other outcomes achieved by FWO
Enforceable undertakings
Letters of caution
Infringement notices
Compliance notices
THE 7-ELEVEN SAGA
Mai Decision
Resulted in the FWO securing its largest ever penalty for
contraventions of an Award - $408,348
Non compliance deliberate
Falsification of records to cover up non compliance
Employees affected were vulnerable
“Innocent” underpayments can still lead to individuals being
“involved in” contravention.
100% of FWO prosecutions in
the 7-Eleven Saga
included accessories
THE 7-ELEVEN SAGA
AWARD COMPLIANCE & UNDERPAYMENT
AWARD COMPLIANCE & UNDERPAYMENT
Most Award non compliance relates to underpayment of:
Wage rates
Penalty rates
Allowances
Failure to comply with an Award is a breach of the Act
Employers (and individuals) can be liable to rectify breach and
to pay interest and penalties
PENALTIES
Penalty payable for each separate breach
Current maximum penalties:
$10,800 for individuals
$54,000 for bodies corporate
ACCESSORIAL LIABILITY
ACCESSORIAL LIABILITY
Section 550 of the Act provides that a person who is “involved
in” a contravention is taken to have contravened the provision
Used to bring proceedings against persons other than the
employer
Also used to continue action if employer is put into liquidation
ACCESSORIAL LIABILITY
What amounts to an accessory?
Under the Act, a person is “involved in” a contravention if, and
only if, they have:
aided, abetted, counselled or procured the contravention; or
induced the contravention, whether by threats or promises or
otherwise; or
been in any way, by act or omission, directly or indirectly,
knowingly concerned in or party to the contravention; or
conspired with others to effect the contravention
ACCESSORIAL LIABILITY
An accessory:
must have knowledge of the essential facts constituting the
contravention
must be knowingly concerned in the contravention;
must be an intentional participant in the contravention based on
actual not constructive knowledge of the essential facts
constituting the contravention — although constructive
knowledge may be sufficient in cases of wilful blindness; and
need not know that the matters in question constituted a
contravention
ACCESSORIAL LIABILITY
In the case of accessorial liability for Award contraventions,
the following needs to be proved:
the person has knowledge of the relevant Award (although it is
not necessary to know the precise name) and that it applied to
the employer and employees and set minimum conditions;
the person has knowledge the employees performed work of a
particular kind which entitled them to receipt of certain
entitlements; and
the employer did not meet those minimum entitlements
ACCESSORIAL LIABILITY
A person who is aware of a contravention and takes no action
to correct it may be liable as an accessory
Accessories may be:
Directors
Managers
Human resources staff
Other companies
CASE EXAMPLES
CASE EXAMPLE
Fair Work Ombudsman v Oz Staff Career Services Pty Ltd
& Ors
The Occupational Health & Safety and Human Resource Co-
ordinator of the employer was found to have been involved in
contraventions
The contraventions were unlawful deductions from employee
wages which the Occupational Health & Safety and Human
Resource Co-ordinator was aware of, and had previously dealt
with FWO so knew of the contravention
CASE EXAMPLE
Cerin v ACI Operations Pty Ltd & Ors
Human Resource Manager found to be involved in contravention
Contravention was failure to give 5 weeks’ notice (employer only
gave 4 weeks)
Human Resource Manager aware of NES and notice
requirements but couldn’t explain why only 4 weeks’ notice given
Human Resource Manager ordered to pay penalty of $1,020
CASE EXAMPLE
Fair Work Ombudsman v Centennial Financial Services Pty
Ltd & Ors
Human Resource Manager involved in contravention involving
sham contractor arrangements
Human Resource Manager prepared employment contracts then
some time later directed by employer to prepare contractor
agreements for those individuals
Sufficient knowledge of contraventions of the Act
Human Resource Manager should attempt to advise employer of
obligations
CASE EXAMPLE
Fair Work Ombudsman v Al Hilfi & Ors and Fair Work
Ombudsman v Al Basry & Ors (joint decision)
Coles contracted to Starlink to provide trolley collection services
Starlink subcontracted to Al Hilfi and Al Basry
Al Hilfi and Al Basry breached Award provisions
Proceedings against Al Hilfi and Al Basry as well as Starlink and
its owner and general manager
Enforceable undertaking entered into between FWO and Coles
CASE EXAMPLE
Proceedings against Professional Advisers
FWO commenced proceedings against accounting firm for their
involvement in underpayments of employees working for their
client
Undetermined
Fair Work Ombudsman v Priority Matters Pty Ltd & Anor,
(“Silverbrook case”)
Directors successfully defended a claim for accessorial liability
Court found that directors genuinely believed that payment of the
employee entitlements was imminent
Directors had also taken steps to try to pay the entitlements
Found directors did not intentionally participate in the ongoing
failures
CASE EXAMPLE
MINIMISING RISK
MINIMISING RISK
atisfy yourself of the applicable Award
earn the terms of the Award and what they mean
ndertake a comparison of the Award to the current
employment conditions / Under privilege
ectify any breaches as soon as practicable
reserve records
nsure ongoing compliance by conducting regular reviews
nforce a culture of compliance within your organisation
FWO CONDUCT & FUTURE IMPLICATIONS
FWO CONDUCT & FUTURE IMPLICATIONS
FWO often pursues individuals, and often succeeds
Recently criticised for its aggressive and unreasonable
approach and for not acting in the best interests of underpaid
employees
FWO CONDUCT & FUTURE IMPLICATIONS
Proposed changes to the Act:
Increase of penalty to $540,000 for bodies corporate for
deliberate contraventions
New provisions to make it easier for companies to be liable for
breaches of their subsidiaries
FWO to have greater evidence gathering powers
New penalties for obstructing FWO
Increased funding to FWO
CONCLUSION
QUESTIONS
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1. Introduction
1.1 An individual or other organisation, not just an employer, can be liable for compensation and/or penalties for contraventions of an Award.
1.2 In June this year, the Fair Work Ombudsman (“FWO”) secured its largest ever penalty for contraventions of an Award – $408,348 in penalties, split between the employing company and its director; $340,290 and $68,058, respectively. This case was part of the 7-Eleven saga, and although the 7-Eleven cases are mainly instances of wilful non-compliance, it serves as a reminder for all employers and human resources personnel to maintain compliance with Awards, in order to avoid penalties.
1.3 Maintaining compliance is now more important than ever, with the FWO becoming increasingly aggressive in its approach, and plans for the Fair Work Act 2009 (Cth) (“Act”) to be amended to increase the maximum penalty ten-fold and to give the FWO more powers.
2. The 7-Eleven Saga
Background
2.1 The 7-Eleven saga dates back to 2008, when the Workplace Ombudsman (“WO”) (the FWO’s predecessor) started to receive regular complaints regarding underpayment of wages in 7-Eleven stores. The WO investigated and recovered $162,000 in wages across Sydney and Melbourne in 2008. It ultimately uncovered a systemic culture of non-compliance in 7-Eleven franchises, including the falsification of records to cover up non-compliance.
2.2 Throughout 2009 and 2010, the FWO undertook an education and audit campaign of 7-Eleven stores in Melbourne and recovered $32,378 in unpaid wages.
2.3 Between 2011 and 2015, the FWO’s concerns grew as it received more and more requests for assistance from employees of 7-Eleven franchises. In June 2014, the FWO initiated its inquiry into allegations that significant
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underpayments of wages and falsification of employment records were occurring across much of the franchisee network of 7-Eleven stores.
2.4 During the various investigations, the following was uncovered:
(a) employees were not paid for any training they undertook;
(b) employees were being paid below the Award rate;
(c) overtime, evening, weekend and public holiday penalties were not being paid;
(d) casual loading was not being paid;
(e) pay slips were inaccurate, or did not contain the necessary details;
(f) inadequate records were being kept and records were not in a condition that allowed a workplace inspector to determine whether entitlements had been received by employees;
(g) employers were falsifying records by recording half of the actual hours worked by the employees, and indicating that the hourly rate was higher than what it actually was, to make it appear as though the employees were being paid in accordance with, or above, the relevant Award, and to give the impression that visa requirements were being complied with; and
(h) some employers engaged in arrangements where they required employees to return some or all of a wage payment (including payments that were made pursuant to a Court order to rectify an underpayment).
2.5 As a result of the findings of the inquiry, various pieces of litigation were commenced, some of which remain ongoing. A summary of cases and their respective outcomes is annexed to this paper. Other outcomes, such as enforceable undertakings, letters of caution, infringement notices and compliance notices were also achieved.
Penalties
2.6 The most significant decision to come out of the 7-Eleven saga so far is the recent decision of Fair Work Ombudsman v Mai Pty Ltd & Anor.
1 In this decision, the FWO secured its largest ever penalty for contraventions
of an Award – $408,348 in penalties, split between the employing company and its director; $340,290 and $68,058, respectively. This amount is in addition to the $82,661.85 ordered to be paid to employees for underpayments, plus interest. A penalty is payable for each separate contravention and the penalties awarded in this case were 75% of the maximum penalty available at the time of the contraventions.
2.7 When determining the amount of the penalty, the cases demonstrate the Court will consider a number of factors, including:
(a) the nature and extent of the conduct which led to the breaches;
(b) the nature and extent of any loss or damage sustained as a result of the breaches; and
(c) whether or not the breaches were deliberate.
2.8 The amount of the penalty awarded in the Mai case, and in other 7-Eleven cases, is indicative of the nature of the non-compliance. In all of the cases that went to trial, the non-compliance was found to have been deliberate. Many cases also involved the use of falsified records to cover up the non-compliance. Another factor that led to such large penalties is that most of the employees affected by the contraventions were vulnerable, often international students who spoke little English and who were not necessarily aware of their rights.
2.9 Of the proceedings commenced as a result of the inquiry, all proceedings were issued against the employing entity and other persons “involved in” the contravention, usually directors of the employing entity.
1 [2016] FCCA 1481.
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2.10 The examples of non-compliance in the 7-Eleven cases are deliberate in nature, where employers were aware of their legal obligations, and showed contempt for those obligations by deliberately contravening them and taking steps to cover up their actions. In those circumstances, issuing proceedings against persons “involved in” the contravention was relatively simple because actual knowledge of the breaches could be established somewhat easily.
2.11 Cases of wilful and deliberate non-compliance with Award conditions are not common; most cases of underpayment are through non-deliberate acts. However, even in cases of “innocent” underpayments, individuals can still be “involved in” a contravention, and therefore liable for significant penalties.
3. Award Compliance and Underpayment
Background
3.1 Awards, in addition to the National Employment Standards, set the minimum standards of employment for many employees (unless the employee is covered by an enterprise agreement, or is Award free). An Award will usually be expressed to cover a particular industry, for example the General Retail Industry Award 2010 covers the retail industry and was the subject of most of the 7-Eleven cases.
Compliance
3.2 Awards deal with various matters that arise during the course of employment, but most litigated cases involving non-compliance relate to underpayment of any or all of the following:
(a) wage rates;
(b) penalty rates; and
(c) monetary allowances.
3.3 Awards also prescribe other matters, such as the frequency of wages being paid. Employers and other individuals can be also liable for breaches not relating to underpayments.
3.4 Compliance with Award provisions is important, not least because a failure to comply with an Award provision is a breach of the Act.
3.5 Relevant provisions will differ across different Awards, so it is important that employers are aware of precisely which Award applies.
3.6 If an employer is found to have breached an Award provision (deliberately or not), they are liable to rectify the breach. In the case of an underpayment, this would be payment to the employee or employees who had been underpaid. Employers may also be liable to pay interest on the unpaid amounts, plus a pecuniary penalty.
4. Penalties
Maximums
4.1 If an employer is found to have breached an Award, the current maximum penalty for each contravention is $10,800 for individuals and $54,000 for bodies corporate.
Aggregation
4.2 Every instance of an underpayment may not be a breach so as to warrant an individual penalty for each shift or week that an employee is underpaid, but where there are underpayments to multiple employees, the total underpayment for each separate employee will usually be considered a separate and distinct breach of the Award. This means that for employers with a number of employees, the risk of receiving a significant penalty for any breach is high, as has been demonstrated throughout the 7-Eleven saga.
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Personal liability for directors and managers
4.3 A penalty is payable by the person or body corporate who contravened the Award. Pursuant to section 550 of the Act, a person who is “involved in” a contravention is taken to have contravened the provision. Section 550 of the Act creates an accessorial liability for which someone other than the employer can be liable to pay a penalty, or be subject to any other orders that may follow from the contravention.
4.4 The FWO often uses section 550 of the Act to bring proceedings against persons other than the employer. Accessories are usually individuals who are involved in the management of the employing entity, such as directors and company officers. Human resources officers or professional advisers may also be the subject of proceedings. Accessories may also be other companies who have some control over the employer, for example a head contractor or franchisor.
4.5 Section 550 of the Act is also used when the employer is no longer in existence (for example, if the employer is a company which has been put into liquidation). The FWO can still proceed against an individual involved in the contravention, even if the primary respondent (the employer) can’t be pursued.
What amounts to an accessory?
4.6 Under the Act, a person is “involved in” a contravention if, and only if, they have:
(a) aided, abetted, counselled or procured the contravention; or
(b) induced the contravention, whether by threats or promises or otherwise; or
(c) been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
(d) conspired with others to effect the contravention.
4.7 Case authorities suggest that in order for a person to have accessorial liability under the Act, they must be a “knowing participant” or, in other words:
(a) must have knowledge of the essential facts constituting the contravention;
(b) must be knowingly concerned in the contravention;
(c) must be an intentional participant in the contravention based on actual not constructive knowledge of the essential facts constituting the contravention — although constructive knowledge may be sufficient in cases of wilful blindness; and
(d) need not know that the matters in question constituted a contravention.2
4.8 Practically, to be an accessory, a person must assist or encourage the primary offender with something which goes to the essential facts of the contravention; the accessory doesn’t need to recognise that the matters are a contravention, but their conduct must be deliberately aimed at the acts which constitute the contravention.
3
4.9 A person who is wilfully blind may still be liable, but, generally negligence or recklessness are insufficient to prove accessorial liability.
4 That is not to say that passive involvement will not be sufficient to demonstrate liability,
particularly as the Courts have indicated that mere presence at the commission of a contravention may be sufficient to prove accessorial liability.
5
2 Brennan v Plumbing Services Australia Pty Ltd & Ors [2012] FMCA 3, citing Yorke & Anor v Lucas (1985) 158 CLR 661.
3 Ibid.
4 Fair Work Ombudsman v Complete Windscreens (SA) Pty Ltd & Anor [2016] FCA 621.
5 Abigroup Contractors Pty Ltd v CFMEU & Ors [2012] FMCA 820.
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4.10 To succeed in an accessorial liability claim for Award contraventions, it must be established that:
(a) the person knew the employees were employed by the relevant employer during the relevant period;
(b) the person has knowledge of the relevant Award (although it is not necessary to know the precise name) and that the Award applied to the employer and employees and set minimum conditions;
(c) the employees performed work of a particular kind which entitled them to receipt of certain entitlements; and
(d) the employer did not meet those minimum entitlements.6
4.11 An accessory may be someone involved in setting wages rates that are below the minimum provided in the Award and who is aware that employees are working hours and being paid those rates.
7 This definition could
extend to human resource staff and operations managers, not just directors of employers. An accessory may also be someone who is aware of the contravention, and takes no action to correct it.
8
4.12 Although accessorial liability is generally a high bar to reach, the FWO has succeeded in many claims against accessories, including human resource managers and other employees.
Accessories – 7-Eleven Australia Pty Ltd as the franchisor
4.13 In the context of the 7-Eleven saga, the FWO considered whether 7-Eleven Australia Pty Ltd as franchisor was a person involved in the contraventions. 7-Eleven Australia Pty Ltd had a high level of control over its franchisees, but it also provided training and support, including employment and industrial relations training to franchisees. 7-Eleven Australia Pty Ltd also had mechanisms in place whereby the payroll software required a wage rate to be set that was at least the minimum Award rate (these mechanisms were manipulated by franchisees deliberately paying below Award rates). Ultimately, the FWO did not consider 7-Eleven Australia Pty Ltd to be involved in the contravention because it could not be demonstrated that it had knowledge of specific contraventions by specific franchisees.
4.14 The FWO however did find that 7-Eleven Australia Pty Ltd could have taken steps regarding the underpayments, and the FWO made a number of recommendations including establishing a compliance partnership with the FWO, a review of governance, and a review of the fairness of the franchisor’s operating model.
4.15 The cases in the 7-Eleven saga all involve intentional breaches. Cases of this nature are not common; many underpayments are usually a result of innocent breaches. However, as demonstrated in the cases we examine below, individuals may still be liable (along with the employer) for significant penalties, even for unintentional breaches.
5. Cases
Case example – Occupational Health & Safety and Human Resources Co-ordinator found to be involved in a contravention
5.1 In Fair Work Ombudsman v Oz Staff Career Services Pty Ltd & Ors,9 the Occupational Health & Safety and
Human Resources Co-ordinator of the employer was found to have been involved in a contravention because knowledge of unlawful deductions from employee wages could be inferred and the Occupational Health & Safety and Human Resources Co-ordinator had previous dealings with the FWO so as to be aware of the constituent parts of the contraventions. The Court noted in its decision that being “involved in” within the meaning section 550(2) of the Act is satisfied if the person “knows of the contravention and takes no steps to correct it.”
10
6 Fair Work Ombudsman v Al Hilfi [2012] FCA 1166.
7 Ibid.
8 Fair Work Ombudsman v Oz Staff Career Services Pty Ltd & Ors [2016] FCCA 105.
9 [2016] FCCA 105.
10 Ibid at [150].
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Case example – Human Resources manager found to be involved in a contravention
5.2 In Cerin v ACI Operations Pty Ltd & Ors,11
a human resources manager was found to have been involved in a contravention. The contravention was a failure to give the required five weeks’ notice under the National Employment Standards (the employer instead only gave four weeks, a difference to the employee of just over $100). The human resources manager admitted that she was aware of the National Employment Standards and that those Standards applied to all employees of the employer. She also admitted that she was aware that as part of the Standards, there are requirements as to the amount of notice that is to be given on termination and that the amount of notice varies depending on the length of service of the employee concerned. The manager also said that it was within her authority to decide whether an employee would be given four or five weeks’ notice, or payment in lieu. The manager gave no explanation as to why she gave the employee only four weeks’ notice, rather than the required five. The manager was found to have been personally involved in the contravention and was ordered to pay a penalty of $1,020.
Case example – Human Resources manager found to be involved in a contravention
5.3 In Fair Work Ombudsman v Centennial Financial Services Pty Ltd & Ors12
a human resources manager was found to be involved in a contravention involving sham contractor arrangements. The manager had initially been involved in employing the relevant employees, and had prepared their employment contracts. The manager was then, some time later, involved in the preparation of the “consultant agreements” to replace the employment agreements, on the instruction of the employer. The consultant agreements provided that the individuals were to be paid commission rather than a salary or wage, but their positions and duties did not change. The Court found that the mere knowledge of the terms of the employment agreements and then knowledge of the terms of the consultant agreements was sufficient for the manager to be knowingly concerned in the contravention. This indicates that merely complying with a direction from “higher up” will not be a sufficient defence, and a human resources manager should at least attempt to give advice to the employer regarding the employer’s obligations.
13
Case example – director and manager involved in a contravention
5.4 In Fair Work Ombudsman v Crystal Carwash Café Pty Ltd,14
a director and a manager employed by the company were found to have been involved in contraventions. The contraventions related to underpayments and because the director and manager were responsible for setting the terms and conditions of employment for the employees, which included wages, they were involved in the contraventions. The company was fined $70,000 and the director and manager were each fined $10,000 for their role in the contraventions.
Case example – a company other than the employer being involved in a contravention
5.5 An example of where a company other than the employer was “involved in” a contravention is Fair Work Ombudsman v Al Hilfi & Ors
15 and Fair Work Ombudsman v Al Basry & Ors
16 (a joint decision). The factual
circumstances were that Coles Supermarkets Australia Pty Ltd (“Coles”) contracted with Starlink International Group Pty Ltd (“Starlink”) for the collection and management of trolleys at 111 Coles stores in Adelaide. Starlink subcontracted to other employers, who then employed various employees to perform the necessary trolley management and collection. The employers failed to pay the minimum wage, overtime or penalties under the applicable Award. Proceedings were commenced against the employing entities, as well as the former owner and general manager of Starlink and penalties were obtained against all respondents.
5.6 In addition to the proceedings against the employers and Starlink, Coles entered into an enforceable undertaking with the FWO, acknowledging that the model it utilised to obtain trolley collection services was highly vulnerable to exploitation and the perpetuation of poor employment practices including underpayment of wages.
17
11
[2015] FCCA 1654; [2015] FCCA 2762. 12
[2010] FMCA 863; [2011] FMCA 459. 13
Ibid, at [38]. 14
[2014] FCA 827. 15
[2016] FCA 193. 16
[2016] FCA 193. 17
Fair Work Ombudsman (Cth), Enforceable Undertaking between The Commonwealth of Australia and Coles Supermarkets Australia Pty Ltd: (October 2014).
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Case example – professional adviser being involved in a contravention
5.7 The FWO has also pursued professional advisers, recently commencing proceedings against an accounting firm and its operations manager for their involvement in the underpayment of two employees working for their client. The matter has not been determined, but is the first attempt by the FWO to pursue an accountant for being involved in a contravention allegedly committed by its client.
18
Case example – directors not involved in a contravention
5.8 In Fair Work Ombudsman v Priority Matters Pty Ltd & Anor,19
(“Silverbrook case”) two directors were found not to have been involved in a contravention. In this case, the relevant breaches were employees not being paid the minimum wage under the Award, overtime or penalties. The FWO commenced proceedings against the employing entities (there were various entities) and directors, Kia Silverbrook and Janette Lee.
5.9 The reason that employee entitlements had not been paid was said to be due to temporary cash flow issues. The Federal Circuit Court accepted the evidence of Mr Silverbrook and Ms Lee that they genuinely believed that payment to the employees was imminent and that that belief was held on reasonable grounds and honestly held. Further, Mr Silverbrook and Ms Lee had taken all reasonable steps to try to pay the entitlements; including exhausting their own personal funds. The employing entity was also entitled to a tax credit of about $748,000 that had been lodged with the ATO.
5.10 On that basis, the Court found that neither Mr Silverbrook or Ms Lee intended to participate in the ongoing failure to pay wages and entitlements and the claim by the FWO under section 550 of the Act failed.
5.11 Separately, the FWO had encouraged employees to bring proceedings to put the employing entity into liquidation so that they could obtain Fair Entitlements Guarantee payments.
5.12 This case demonstrates the attitude of the FWO in prosecuting underpayments. Despite the steps taken by Mr Silverbrook and Ms Lee in exhausting their personal funds to attempt to pay employees, and the impending tax credit owed to the employer, the FWO pursued the case and encouraged employees to bring proceedings to put the employing entity into liquidation. The liquidation then jeopardised the employer’s entitlement to the tax credits which could have covered a significant portion of the underpayments owed to employees.
5.13 This conduct by the FWO was found to have caused enormous problems in Mr Silverbrook’s and Ms Lee’s endeavours to have employees paid outstanding entitlements. The Federal Circuit Court criticised the FWO for its aggressive and unreasonable strategy in pursuing the underpayment claim and suggested that the FWO did not act in the underpaid employees’ best interests The Court also found that as a result of the FWO’s conduct, it may be liable for paying Mr Silverbrook’s and Ms Lee’s legal fees (or at least part of their legal fees).
5.14 In addition to the FWO’s unreasonable conduct in encouraging employees to commence winding up proceedings, the FWO made an application for Mr Silverbrook’s and Ms Lee’s (along with the employing entities’) solicitor to be dealt with for contempt.
5.15 The Court found the FWO’s application to be “outrageous and baseless, utterly lacking in substance” that it was “inappropriate conduct” and contrary to the FWO’s obligations as a model litigant. The FWO may also be subject to a costs order for this conduct.
How can you minimise the risk?
5.16 Fortunately, it is relatively easy to ensure that Award requirements are being met.
5.17 The first step is to ascertain whether there is an Award that covers the employer and employees. The terms of the Award should then be compared to the terms and conditions of employment for the relevant employees to ensure that, at least, the minimum conditions in the Award are being met.
18
Fair Work Ombudsman (Cth), Accounting firm faces Court over alleged involvement in underpayment of workers (19 February 2016) < https://www.fairwork.gov.au/about-us/news-and-media-releases/2016-media-releases/february-2016/20160219-blue-impression-litigation> 19
[2016] FCCA 1474.
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5.18 Full copies of all Awards are available on the FWO website, along with pay guides for each Award, which have been prepared by the FWO.
5.19 It is also important to note that minimum wage rates generally increase each year, effective the first full pay period after 1 July, so employers and human resources staff should conduct a compliance check at least once a year. Other industries, such as the social, community, home care and disability services industry are presently subject to wage increases every six months, so employers in this industry should undertake a compliance check at least twice a year.
What to do if faced with allegations of an underpayment
5.20 If an employee alleges that they have been underpaid, then the employer should conduct an internal investigation to determine whether there has been any underpayment and, if so, the extent of the underpayment. If, as a result of that investigation, it is found that the employee has been underpaid, then the underpayment should be rectified as soon as practicable.
5.21 Employers need to be aware that any documents and communications that relate to the allegation and the internal investigation may be subject to discovery by the FWO, and then used by the FWO in seeking to prosecute the employer and the individuals.
5.22 If an employer obtains legal advice in relation to an alleged underpayment, legal professional privilege will apply which can prevent compulsory disclosure of relevant documents and communications to the FWO.
6. FWO Conduct and Future Implications
6.1 The FWO has made a point of pursuing individuals and other organisations involved in contraventions, and not just the employer. The FWO’s recent proceedings against an accounting firm (although undetermined at present), means that it is not just directors and managers in the frame.
6.2 In light of the 7-Eleven saga, the government has released a policy on protecting vulnerable workers, which indicates that it intends to amend the Act to increase the penalty for any deliberate contraventions ten-fold. That would make the maximum penalty for a body corporate $540,000.
20
6.3 The government also intends to introduce new provisions, which would make it easier for related companies (such as franchisors and parent companies) to be liable for breaches by their franchisees or subsidiaries. The circumstances in which a franchisor or parent company might be liable is limited to where the franchisor or parent company should reasonably have been aware of the breaches, and could reasonably have taken action to prevent them from occurring.
21
6.4 In addition to the increased penalties and new provisions, the government intends to give the FWO greater evidence gathering powers, will introduce new penalties for obstructing FWO Inspectors, and will increase funding to the FWO to enforce the new protections being put in place.
22
6.5 If these provisions are put into place, then employers can expect even more activity from an already active and, at times, aggressive FWO.
7. Conclusion
7.1 It is important for employers, directors and human resource managers (or other individuals involved in employment-related matters) to ensure that Awards and all other aspects of employment meet minimum standards.
20
The Liberal Party of Australia, The Coalition’s Policy to Protect Vulnerable Workers < https://www.liberal.org.au/coalitions-policy-protect-vulnerable-workers> 21
Ibid. 22
Ibid.
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7.2 The FWO has shown a propensity to commence proceedings against individuals and other organisations, as well as employers, for any alleged breaches. The cases demonstrate the FWO is often successful in these claims, securing significant penalties.
FOR MORE INFORMATION, PLEASE CONTACT:
MURRAY PROCTER // Partner
61 7 3001 9225
Acknowledgement is given to Laura Gercken, Associate, ClarkeKann Lawyers and Fair Work Ombudsman (Cth), A Report of the Fair Work Ombudsman’s Inquiry into 7-Eleven: (April 2016), in compiling this paper.