The Fair Work Ombudsman, Natalie James, has repeatedly warned employers and their managers, human resource staff, contractors, advisors and franchisors that she intends to fully prosecute accessorial liability to “build a culture of compliance” with the Fair Work Act 2009 (Cth) (“Act”) and other Australian workplace laws.¹

These warnings come in the wake of high-profile allegations of worker exploitation by large companies and their supply chains including 7-Eleven, Pizza Hut, Coles, Woolworths and Baiada.

At the Law Institute of Victoria Workplace Relations Conference on 28 October 2016, the Ombudsman cautioned that “we will use every tool available to us, on the statute books and via the media, to right these wrongs”.² Indeed, during the last financial year, 92% of the matters that the Ombudsman filed in court sought orders against third party “accessories”.³

What does “accessorial liability” really mean?

An employer who contravenes the Act is responsible for that contravention and may face penalties for doing so.

However, section 550 of Act also imposes liability on any other individual or body who is “involved” in a breach of the Act. This is commonly known as “accessorial liability”.

A person is “involved” in a contravention if they:

  • have aided, abetted, counselled or procured the contravention;
  • have induced the contravention, whether by threats or promises or otherwise;
  • have been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
  • have conspired with others to effect the contraventions.

Compensation from accessories

The types and scope of the orders the Ombudsman is seeking against accessories have expanded. Where a corporate employer no longer exists, is uncooperative, or cannot be found, or if it appears to have insufficient funds, the Ombudsman will seek orders against individuals or other organisations involved in an employer underpaying staff.

The Ombudsman took this approach in the recent case of Fair Work Ombudsman v Step Ahead Security Services Pty Ltd & Anor [2016] FCCA 1482. Step Ahead had failed to pay eight employees $22,779 in entitlements under the Security Services Industry Award 2010. The company was owned and controlled by a sole director, Mr Owen Jennings, and Judge Jarrett found that Mr Jennings was the controlling mind behind the company and responsible for ensuring that it met its legal obligations under the Act.

Mr Jennings admitted that Step Ahead had contravened the Act and that he was personally involved in the contravention. He had received warnings from the Ombudsman about the underpayments and was found to have been well aware of the requirements of the Award, yet intentionally continued to underpay the employees in breach of the Act.

The company and Mr Jennings were both ordered to pay employees their lost wages. The Company was also ordered to pay $257,000 in penalties, and Mr Jennings was ordered to pay $51,400.

In making orders against Step Ahead and Mr Jennings, Judge Jarrett took into account the deliberateness of the breaches and also the fact that:

  • the underpayments had not been rectified;
  • Mr Jennings had engaged in similar conduct in the past; and
  • neither the company nor Mr Jennings had expressed any remorse for their actions.

Prosecution of franchisors

The Ombudsman has also demonstrated that it is willing to prosecute franchisors in relation to contraventions by franchisees. An example of this is the case of Fair Work Ombudsman v Yogurberry World Square Pty Ltd [2016] FCA 1290.

In that case, the Ombudsman brought proceedings in the Federal Court of Australia against Yogurberry World Square Pty Ltd, a frozen yogurt store, for contravening the Act by failing to pay four employees in accordance with the Fast Food Industry Award 2010, failing to pay wages in full by making unlawful deductions, and failing to keep records and issue payslips. The employees were paid as little as $8 an hour and the underpayments totalled $17,827.

Yogurberry World Square was part of a group of companies run by Ms Soon Ok Oh, including YBF Australia Pty Ltd (the master franchisor), and CL Group Pty Ltd (Yogurberry’s payroll company). The Fair Work Ombudsman took legal action against all three companies and Ms Oh. Each of the respondents admitted their involvement in the contraventions.

Justice Flick found that YBF Australia, the franchisor, was directly involved in setting pay rates and other practices at the store, and that the worker exploitation occurred despite prior warnings from the Ombudsman. His Honour also held that YBF Australia and its associated companies had deliberately not disclosed information to the Ombudsman to disguise their true financial position from scrutiny.

Justice Flick took this evasive behaviour into account in ordering penalties totalling $146,000, split as follows:

  • Yogurberry World Square: $75,000
  • YBF Australia: $25,000
  • CL Group: $35,000
  • Soon Ok Oh: $11,000

Justice Flick also ordered that Yogurberry engage an independent auditor to audit all Yogurberry franchises for compliance with the Act and the Award. Finally, His Honour ordered the respondents to engage an external trainer to ensure that key staff were aware of their statutory and award obligations.

Lessons for employers

As these cases show, the Ombudsman is pushing the boundaries of the accessorial liability provisions contained in the Act. Employers can protect themselves from financial penalties and reputational damage by ensuring that they understand and comply with relevant workplace laws.

Managers and other human resource personnel also need to be aware that they can be personally liable for their employer’s contravention of the Act and other Australian workplace laws. Anyone involved in managing employee entitlements in a workplace should ensure that they understand their and their employer’s obligations, and take appropriate steps when those obligations are not being met.

When contracting out work or franchising, businesses should also undertake due diligence on their contractors, suppliers and franchisees, and contractually require compliance with the Act.

Most importantly, if you receive an allegation that your organisation, or one of your contractors or franchisees, is breaching its workplace obligations, it is important that you take legal advice and address the issue (rather than ignore it).