In recent times there has been a concerted effort by the Fair Work Ombudsman to hold businesses to account under the Fair Work Act if their contractor or sub-contractor is not compliant with the federal workplace laws. This is commonly called accessorial liability.
Many businesses use contracting as a legitimate and integral part of their business model. However, in doing so they need to be aware of where their obligations begin and end, along with steps that can be taken to avoid the risk of being found liable as an accessory to a breach of federal workplace laws by contractors.
In this eBulletin, we look at the issue of responsibility and contractor management, including tips for how businesses can reduce the risk of their contracting practices exposing them to claims of being an accessory to a breach of the Fair Work Act.
A consideration for many businesses is whether it makes sense to engage a contractor to perform some of the functions of the business.
Many factors determine this decision, including whether to engage a contractor, if the function is a key part of the business, if resources exist to perform the function (and therefore manage the function) and also if it is cost effective.
When contracting, businesses need to be aware that their legal responsibility for compliance with federal workplace laws is not avoided by entering into a contracting arrangement.
The matter of accessorial liability
Many businesses take the view that once the contract is in place, the responsibility for compliance with federal workplace laws rests solely with the contractor and their sub-contractors. Whilst it is correct that the employer is responsible for breaches of workplace laws, businesses need to bear in mind that the Fair Work Act 2009 (Cth) (FW Act) also provides a mechanism where someone other than the employer can also be considered an accessory to any contraventions of workplace laws. As such, they can also be held liable for that contravention and be subject to penalties and compensation.
Under the FW Act, the definition of being "involved in a contravention" is very broad and 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. An example would be entering into a contractor arrangement with a labour hire company at an hourly rate that does not meet the minimum modern award rate of pay. If this was in the knowledge of the principal, or they required this rate of pay to be offered by the labour hire company, this would mean the principal was involved in the contravention with the contractor.
Although this mechanism has existed in various forms in workplace relations legislation for some years now, it is increasingly being used by the Fair Work Ombudsman (FWO) to hold businesses (as principals) to account for their procurement decisions. The FWO has been very public about holding businesses (and even individuals) accountable for practices it considers undermines, or have the potential to undermine, compliance with federal workplace laws. It has flagged that it intends to increasingly go up and down the supply chain to scrutinise these contracting arrangements.
This is distinct from simply prosecuting a director or manager of a business that has breached federal workplace laws on the basis that the director or manager was the controlling mind and will of the company.
A recent example of this in action has been the FWO using the FW Act to bring proceedings against a large retailer. The FWO argued that the retailer was liable as an accessory to contraventions of federal workplace laws by its contractor's subcontractors, who were alleged to have underpaid their employees, along with failing to comply with record keeping and pay slip requirements. The retailer defended the proceedings and ultimately a settlement was reached.
Bottom line for Employers
So how can a business protect against this risk? Whilst it's almost impossible to completely insulate your business from the risk of being held liable as an accessory, when engaging in procurement or contracting out services, businesses should bear the following tips in mind:
- take all reasonable steps to ensure that your own employees who are involved in the procurement or contracting out of services, along with potential contractors, have knowledge of applicable workplace laws and that they comply with these laws;
- depending on the scale of the procurement or contracting arrangement, provide your own employees and contractors with training and education in workplace law compliance;
- in arrangements with contractors, require the ability to have the contractor audited for compliance, and require a warranty or undertaking that the contractor and its sub-contractors are compliant in all aspects;
- limit the ability of the contractor to subcontract the work without your knowledge. If you are content to allow the contractor to subcontract the work, require that the subcontractor meets the same strict compliance with workplace laws that you require from your contractor;
- in the event that you receive a complaint from employees of your contractor or subcontractor concerning compliance with workplace laws, fully investigate the issue until satisfied the complaint has been dealt with appropriately;
- provide for termination of any contractual arrangements in the event that breaches of workplace laws are established, and act swiftly on your ability to terminate; and
- make sure any payment to a contractor complies with other laws such as security of payment laws in the building and construction industry.