The Fair Work Ombudsman (FWO) commenced proceedings against Coles due to underpayment of its trolley collectors. Coles outsourced these services to contractors who were underpaying the employees. Coles has now entered into an Enforceable Undertaking (the Undertaking) to ensure ongoing compliance by the contractors with minimum wage requirements.

BACKGROUND

Coles outsourced the majority of its trolley collection services to over 30 different contractors. It was discovered by the FWO that some of the contractors had been underpaying their employees. Although there is no direct relationship between Coles and any subcontractors or employees being underpaid, the FWO commenced proceedings against Coles alleging that they knew that the contractors were not paying their employees correctly. Coles were not aware of the underpayments due to reasons including the lack of transparency in the traditional contracting model being used. As a result, Coles agreed to enter into the Undertaking to ensure that the contractor's employees are not being underpaid and the FWO dismissed the proceedings against Coles.

THE UNDERTAKING

The FWO may enter into an enforceable undertaking with an employer who has not complied with an Australian workplace law. An enforceable undertaking will be entered into instead of commencing or continuing with proceedings where the employer is prepared to remedy the problem causing non-compliance and the employer agrees to conduct preventative actions for the future. Where an enforceable undertaking is not being complied with, the FWO can enforce the terms of the agreement in court.

When entering the Undertaking, Coles acknowledged that it is responsible for compliance with the law across all its business operations and that it has an ethical and moral responsibility to require standards of conduct from all entities and individuals involved in the conduct of Coles. One of the main reasons that Coles was unaware of the underpayments was due to the lack of transparency of the traditional contracting model being used. Coles acknowledged that the traditional contracting model is highly vulnerable to exploitation, lacked transparency and was inadequate. Coles also acknowledged that the systems and processes it used to monitor compliance within that model were insufficient, lacked cohesion and were not consistently applied.

Coles is required to conduct the following activities in the undertaking:

  • Build an "in-house" trolley collection model by bringing all trolley collection services in house;
  • Contact United Trolleys Collection (the single trolley collection service contractor) weekly to discuss and monitor ongoing compliance;
  • Encourage use of the recently established hotline that requires store managers to escalate wage underpayment complaints to Coles head office. When a complaint is made, Coles must investigate it within 28 days;
  • Provide a report each year to the FWO outlining all details of any underpayment complaints, subsequent investigations and findings;
  • Establish a "guarantee" reserve fund to be maintained at $500,000. This fund is to be distributed to trolley collectors in the event it is found there has been an underpayment of wages;
  • Conduct annual audits of wages of at least 20% of direct sub-contractors of United Trolleys Collection;
  • Implement a workplace relations training program that will provide training on compliance, contractor obligations and the Hotline underpayment complaints service.

The Undertaking also requires Coles to back-pay ten of the employees totalling approximately $220,000.

The Undertaking will cease to apply on the earlier of 31 December 2018 or when all trolley collection services have been brought in-house.

Coles is now using only one trolley collection provider for all of its supermarkets. This provider operates one single external payroll and has entered into a deed of proactive compliance to provide transparency of payment of wages to its employees.

As a result of entering into the Undertaking, the FWO did not continue with the proceedings against Coles.

WHAT DOES THIS MEAN FOR YOU?

Businesses outsourcing or contracting out services must ensure they have sufficient systems and processes in place to monitor compliance with all relevant laws. It is not sufficient to argue that as the head contractor, the business is unaware of the operations or non-compliance of related entities. Further, the courts have determined this is not a sufficient defence to an underpayment of wages claim, even in circumstances where the business is not directly underpaying the employees.

It is best practice to ensure there is transparency in all contracting relationships to allow for monitoring of compliance.