On 15 September 2017, the (Amendment Act) came into effect, arming the Fair Work Ombudsman (FWO) with greater investigative and enforcement powers, targeting franchisors and holding companies, and significantly increasing penalties in order to protect the underpayment and exploitation of vulnerable workers.
The Amendment Act introduces a number of changes to the Fair Work Act 2009 (Cth) following a string of recent large retail organisations, including 7-Eleven, Caltex, Coles and Dominos, engaging or involved in systematic underpayment and exploitation of vulnerable workers.
Key amendments to the Fair Work Act
The key amendments to the Fair Work Act that will affect employers include the following.
- The amendments introduce a new category of penalties for serious contraventions of certain civil remedy provisions that is 10 times higher than the current amount.
- Civil penalties for serious contraventions will increase from 60 penalty units up to 600 penalty units with maximum penalties of $630,000 for corporate entities and $126,000 for individuals.
- Serious contraventions will be pursued where a person has knowingly contravened a civil remedy provision and the person’s conduct was part of a systematic pattern of conduct relating to one or more persons.
- A corporate entity will knowingly contravene a civil remedy provision if the corporate entity expressly, tacitly or impliedly authorised the contravention.
Liability of franchisors and holding companies
- New provisions holding franchisors and holding companies responsible for breaches of the Fair Work Act made by their franchisees and subsidiaries have been introduced.
- Franchisors and holding companies will be liable for certain contraventions of civil remedy provisions by their franchisees and subsidiaries if:
- the responsible franchisor/holding entity has a significant degree of influence or control over the franchisee/subsidiary entity’s affairs;
- the franchisor/holding entity or an officer of that entity knew or could reasonably be expected to have known that the contravention by the franchisee/subsidiary entity would occur; and
- the franchisor/holding entity or an officer of that entity knew or could reasonably be expected to have known that a contravention by the franchisee/subsidiary entity of the same or a similar character was likely to occur.
- Franchisors and holding companies will be exempt from liability if all reasonable steps were taken to prevent contraventions by their franchisees and subsidiaries. A number of factors will be used to determine whether reasonable steps were taken.
- The amendments allow employees of franchisees and subsidiaries to obtain compensation orders against franchisors and holding companies where the employee has received an order from the court or commission and the franchisee or subsidiary failed to pay the employee.
Prohibition on unreasonable requirements
- Employers will be prevented from unreasonably requiring employees or prospective employees to make payments to the employer (to prevent the pay back arrangements that occurred in 7-Eleven).
- Payments will be prohibited 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.
Investigative and enforcement powers of the FWO
- The evidence gathering and enforcement powers of the FWO will be strengthened to ensure that the exploitation of vulnerable workers can be properly investigated.
- The amendments introduce new penalties for providing false or misleading information to Fair Work inspectors or hindering or obstructing Fair Work inspectors in investigations.
Reverse onus of proof for unpaid wages claims
- The employer will bear the burden of disproving allegations in proceedings relating to contraventions of civil remedy provisions where the employer was required to make or keep a record (time and wage records) or provide a payslip but failed to do so.
- The burden will not apply if the employer had a reasonable excuse for why it failed to comply with this requirement.
The amendments have significant impacts on the liabilities and obligations of employers, franchisors and holding companies.
While the majority of the amendments commenced on 15 September 2017, the amendments making franchisors and holding companies responsible for the actions of their franchisees and subsidiaries will commence on 27 October 2017.
We anticipate that the FWO will actively pursue franchisors and holding companies under the new provisions of the Fair Work Act with Ombudsman Natalie James announcing in a speech on 14 September 2017 that it will likely pursue alleged underpayments at Caltex service stations.