The recent 7-Eleven and Baiada Group cases highlight the importance of ensuring that third parties all businesses engage comply with employment law obligations.
The Fair Work Act 2009 (Cth) (FW Act) allows for someone other than the immediate employer or principal to be considered an accessory to a contravention of the legislation. This can include corporate entities further up the supply chain and their directors and senior managers.
The Fair Work Ombudsman’s (FWO) recent investigation of 7-Eleven stores identified systemic underpayments to workers and false record-keeping practices. Even though so far the FWO has only directly pursued individual franchises and their operators, as a result of the uncovered non-compliance, 7-Eleven is now the subject of a national inquiry by the FWO. These events prompted the 7-Eleven Chairman and Founder to publicly accept responsibility and direct the board and senior executives to rectify the problem. However, in addition to the significant negative public relations consequences of the FWO investigations, 7-Eleven can still be subject to penalties of up to $54,000 per breach and its directors and officers can be subject to penalties of up to $10,800 each.
The FWO’s recent investigation of Baiada’s Group (Baiada) labour procurement processes also identified numerous incidents of non-compliance with the FW Act and industrial instruments, including underpayments on the part of Baiada’s contractors. Despite the fact that the direct responsibility for non-compliance rested with its contractors, Baiada entered into a deed with the FWO under which it agreed to pay $500,000 in rectification of underpayments by its contractors and subcontractors, if the latter fail to rectify any such underpayments.
Corporate social responsibility and accessorial liability
The 7-Eleven and Baiada examples demonstrate that the FWO did not need to commence proceedings against the head contractors or franchisors to put pressure on the Boards of those entities to assume responsibility for the failings of the contractors (or franchisors), to rectify the underpayments and adopt proactive compliance programs, because of the further potential reputation damage, which could be caused by the non-compliance.
In addition, directors and managers need to be aware that sham contracting and non-compliance with minimum legal entitlements under the FW Act and any applicable industrial instruments are civil penalty provisions, for which pecuniary penalties may be imposed on persons "involved in a contravention". This includes:
- aiding, abetting, counselling or procuring the contravention;
- inducing the contravention;
- being knowingly concerned in or party to the contravention; or
- conspiring with others to bring about the contravention.
Employers should take the following steps to minimise the risks of being liable for their contractors’ employment arrangements:
- ensure third party contracts allow for random inspection of the contractors’ employment records;
- include provisions in the contractual arrangements to require compliance with employment legislation, allow external and internal audits to ensure such compliance and include indemnities and termination rights for non-compliance;
- ensure senior management, contractors and their subcontractors understand the requirements of workplace legislation; and
- immediately investigate all complaints received from employees of contractors or subcontractors concerning compliance with workplace laws and take appropriate action.