Last week, Federal Parliament passed the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (Bill).

These proposed changes to the Fair Work Act 2009 (Cth) (FW Act) were first introduced into Parliament in March this year, constituting the Government’s response to instances of systemic underpayment including the 7-Eleven underpayments scandal.

The new provisions also respond to community concern about the exploitation of vulnerable workers, in particular migrant workers and many of those who work in the franchise sector.[1]

In this article, we examine the key measures in the Bill including significant amendments (mainly proposed by the Labor Party) which were voted up in the Senate.

6 Key Measures

1. Higher penalties for ‘serious contraventions’ of workplace laws

The Bill substantially increases the maximum civil penalties that apply for certain ‘serious contraventions’ of the FW Act. The maximum penalty will increase by ten times, equating to $126,000 per contravention for individuals and $630,000 for corporations.

As discussed in our previous article which analysed the original provisions in the Bill, the higher maximum penalties will apply to specific civil remedy provisions of the FW Act including the prohibitions upon an employer breaching an applicable modern award (e.g. through underpayments).

A contravention will be a serious contravention only where the person knowingly contravened the provision, and that conduct formed part of a pattern of conduct relating to one or more persons (e.g. previous breaches of awards/other civil remedy provisions).[2]

Additionally, a person involved in a breach of a civil remedy provision committed by another person will commit a serious contravention of the provision, if the principal’s contravention was a serious contravention and the person involved knew that it was a serious contravention.[3]

2. Increased penalties for record-keeping failures

The Bill also materially increases the maximum civil penalties for employers who have:

  • made or kept employee records that the employer knows are false or misleading; or

  • provided a pay slip that the employer knows is false or misleading.

The maximum penalty for breaching the relevant FW Act provisions will increase to $126,000 per contravention for individuals and $630,000 for corporations.

3. Reverse onus of proof on employers where record-keeping requirements not met

Labor’s amendments to the Bill create a reverse onus of proof on employers in proceedings where an allegation is made against an employer in relation to a civil remedy provision, that the employer was required to make and keep a record, make it available for inspection or provide a pay slip but failed to do so.[4] It will then be for the employer to disprove that allegation.

However, this presumption will not apply if the employer provides a reasonable excuse as to why records had not been made, kept or made available for inspection.[5] The term reasonable excuse is not defined in the amendments.

4. Extended liability for franchisors and holding companies

The Bill establishes that where a franchisee contravenes the FW Act, the franchisor will also contravene the Act if it ‘knew or could reasonably have been expected to have known’ that the contravention, or a similar contravention, would occur.[6]

A franchisor will not contravene the new rule if it has taken ‘reasonable steps to prevent the contravention by the franchisee’. The proposed legislation establishes a list of items to which a court may have regard when determining whether reasonable steps have been taken, including:

  • the extent to which the franchisor had the ability to influence or control the contravening employer’s conduct;

  • any action taken by the franchisor towards ensuring that the contravening employer had a reasonable knowledge and understanding of the FW Act;

  • the franchisor’s arrangements for assessing the franchisee’s compliance with workplace laws;

  • the franchisor’s arrangements for receiving and addressing possible complaints about alleged underpayments; and

  • the extent to which the franchisor’s arrangements with the contravening employer ‘encourage or require’ the employer to comply with workplace laws.[7]

Amendments to the Bill moved by Senators Leyonhjelm and Bernardi, aimed at limiting the liability of franchisors under the new provisions to situations where the franchisor has materially influenced the conduct of franchisees, were not approved by the Senate.

This extended liability of franchisors, which also applies to holding companies within a corporate group structure, is further discussed in our previous article examining the original Bill. That article notes the delicate balance to be struck between franchisors on the one hand taking steps to try to ensure that franchisees are complying with their obligations under the FW Act (e.g. providing access to training to franchisees and undertaking audits of franchisees) and on the other hand, getting so involved in franchisee operations that they risk accessorial liability.

5. Additional investigative powers for the Fair Work Ombudsman

The Bill will increase the investigative and evidence-gathering powers of the Fair Work Ombudsman (FWO). Labor’s amendments have introduced a range of safeguards in relation to the FWO’s exercise of these powers, and narrowed their application so they cannot be used to investigate conduct by employees and unions (e.g. industrial action or right of entry).

The FWO may apply to a presidential member of the Administrative Appeals Tribunal (AAT) to obtain a ‘FWO Notice’, if the FWO believes on reasonable grounds that the person:

  • has information or documents relevant to an investigation into specified matters (e.g. underpayments); or
  • is capable of giving evidence that is relevant to such an investigation.[8]

The FWO Notice may only be issued if the AAT presidential member is satisfied of a number of factors, including that:

  • an inspector has commenced the investigation;

  • there are reasonable grounds to believe that the person has the relevant information or documents, or is capable of giving relevant evidence;

  • other methods of obtaining the information have been attempted and have been unsuccessful, or are not appropriate;

  • the information would be likely to be of assistance in the investigation;

  • it would be appropriate, having regard to all the circumstances, to issue the FWO Notice.[9]

The FWO Notice may require the person to give information, produce documents or attend before the FWO to answer questions (with legal representation if the person so wishes).[10]

The maximum penalty for failing to comply with an FWO Notice is $126,000 for an individual and $630,000 for a corporation. Penalties will also apply to a person who intentionally hinders or obstructs the FWO or its inspectors in the course of their duties.

While the new provisions offer protection from liability relating to evidence provided in response to a FWO Notice in relation to that conduct, the privilege against self-incrimination will not apply.[11]

The amendments also impose reporting obligations upon the FWO, including notifying the Commonwealth Ombudsman of the issue of a FWO Notice.[12] The Commonwealth Ombudsman must report to Parliament on a quarterly basis about any examinations conducted under a FWO notice during that quarter.[13]

6. New prohibition on ‘cash-back’ arrangements applying to both current and prospective employers

Specifically aimed at ‘cash-back’ arrangements uncovered at 7-Eleven, the Bill prohibits an employer from directly or indirectly requiring an employee to spend, or pay to the employer or another person, an amount of money or part of the employee’s wage if:

  • the requirement is unreasonable in the circumstances; and

  • the payment is directly or indirectly for the benefit of the employer or a party related to the employer.

Similarly, the amendments will now also prohibit a prospective employer directly or indirectly requiring a prospective employee to spend, or pay to the prospective employer or any other person, an amount if:

  • it is in connection with employment or potential employment;

  • it is unreasonable in all the circumstances; and

  • the payment is directly or indirectly for the benefit of the prospective employer.[14]

What should businesses do next?

The provisions in the Bill will come into effect six weeks from the date it receives Royal Assent.

Businesses should start preparing now for the commencement of these significant changes to the FW Act, including through the following steps:

  • Ensure your systems for compliance with minimum employment standards under the FW Act, awards and agreements are rigorous and capture employees at all levels of your organisation. Examine also the compliance measures within other elements of your supply chain, including related entities or franchisees over which you have a significant level of control.

  • Review current arrangements for employment record-keeping and issuing of pay-slips to employees. While the changes are aimed at employers who have kept poor or inaccurate records as part of deliberate underpayment arrangements, all businesses should ensure that they adopt a ‘best practice’ approach in this area. The importance of this is highlighted by the significant increase in penalties and the new reverse onus of proof where record-keeping breaches are alleged.

  • Franchisors should closely examine existing franchisee relationships and how these are structured. Given the new test that will apply to determine liability, which considers whether franchisors have taken reasonable steps to prevent workplace law breaches by franchisees, it is necessary for franchisors to consider implementing training and auditing processes which support compliance by franchisees. Corrs can assist franchisors to develop strategies to promote labour compliance among franchisees, address concerns about non-compliance, and generally assist to reduce franchisors’ legal and reputational risks. We can also assist in responding to FWO audits and investigations, or help businesses proactively engage with the regulator.

  • Revisit internal processes for responding to requests from regulators, such as the FWO, for information relating to potential breaches of workplace laws – in light of the FWO’s new evidence-gathering powers. Consider, in particular, the role of IR and HR managers in dealing with these issues at an operational level.