Russell Kennedy looks at the Fair Work Ombudsman’s use of enforceable undertakings as an alternative to litigation

Despite the increasing volume of litigation commenced by the Fair Work Ombudsman against employers allegedly contravening the Fair Work Act 2009 (Cth), the Ombudsman has repeatedly said that litigation is its tool of last resort for ensuring compliance with Australia’s workplace laws.

In keeping with that statement, the Ombudsman will in some cases accept enforceable undertakings from employers to resolve contraventions of the Act and avoid the need for time-consuming and costly court proceedings.

What is an enforceable undertaking?

An enforceable undertaking is a written agreement between the employer and the Ombudsman regulated by the Act.

An enforceable undertaking will usually contain:

  • an admission that the employer has contravened the Act;
  • steps the employer must take to remedy the contravention, such as rectifying underpayments to staff and arranging regular audits of its workplace arrangements; and
  • an acknowledgement that failure to take those steps may lead to the Ombudsman taking more definitive action, such as commencing formal litigation and seeking penalties.

Once an employer has entered into an enforceable undertaking, it may only be withdrawn or varied with the Ombudsman’s consent. Importantly, an undertaking will not be automatically withdrawn because an employer has complied with it.

Why use enforceable undertakings?

The Ombudsman typically uses enforceable undertakings in circumstances where:

  • an employer has committed serious contraventions of the Act but is prepared to admit and rectify those contraventions;
  • the Ombudsman regards formal prosecution and court proceedings as not being worthwhile, having regard to the time and cost involved; and
  • the Ombudsman seeks outcomes that may not necessarily be available through      court proceedings, such as obtaining an employer’s agreement to undertake internal training regarding its workplace practices or to provide regular audit reports about such practices.

The Ombudsman has publicised a number of enforceable undertakings which it has received from employers.

Example 1 – Jorgensen Property Services Pty Ltd

A cleaning services company, Jorgensen Property Services, recently entered into an enforceable undertaking with the Ombudsman regarding approximately $50,000 in underpayments to sixteen of its employees over a 12-month period.

The Ombudsman had previously conducted an investigation and identified that Jorgensen Property Services failed to pay minimum wages under the Cleaning Services Award 2010.

The employer cooperated with the Ombudsman throughout the investigation, and gave an enforceable undertaking to:

  • pay all of the employees’ outstanding entitlements under an instalment plan;
  • provide a formal written apology to all affected employees; and
  • ensure it has ongoing access to appropriate workplace relations advice.

Example 2 – Centenary Suburbs Sales and Management Pty Ltd

Earlier this year, the Ombudsman discovered that Centenary Suburbs Sales and Management had classified a sales consultant as an independent contractor when she should properly have been engaged as an employee under the Real Estate Industry Award 2010.

The incorrect classification meant that the employee had been underpaid about $16,600 in wages and superannuation.

As part of an enforceable undertaking, the employer agreed to:

  • pay the employee’s outstanding entitlements;
  • provide a formal written apology to the employee; and
  • undertake a variety of measures to review and update its employment practices, including auditing its workforce arrangements to ensure that no other workers were incorrectly classified as independent contractors.

Lessons for employers

Where appropriate, agreeing to an enforceable undertaking can provide an employer with an efficient and cost-effective way of resolving contraventions of the Act. However, the onerous nature of an enforceable undertaking means that it should not be considered without the employer first obtaining appropriate legal advice.

Of course, it is always more efficient for an employer to avoid contraventions of the Act in the first place by properly establishing, and regularly reviewing, their workplace arrangements, including:

  • the terms and conditions of employment for all staff;
  • award coverage for all staff; and
  • the use of independent contractor arrangements.

When in doubt, employers should always seek appropriate legal advice about their obligations.