Federal Court says FWC Penalty Rates Decision stands

The February 2017 decision of a Full Bench of the Fair Work Commission (FWC) to cut penalty rates in certain modern award, as detailed in our blog post here, has been upheld following an appeal by unions in the Federal Court of Australia Full Court (FCAFC).

Background

In February this year, the FWC handed down a decision reducing penalty rates on Sundays and public holidays  in several modern awards. The penalty rate reduction came about largely on the basis that existing penalty rates were no longer within the “modern awards objectives” as detailed in section 134(1) of the Fair Work Act 2009 (Cth) (the FW Act). Awards that felt the hit of this first decision included the:

  • Fast Food Industry Award 2010 (Fast Food Award);
  • General Retail Industry Award 2010 (Retail Award);
  • Hospitality Industry (General) Award 2010 (Hospitality Award);
  • Pharmacy Industry Award 2010 (Pharmacy Award);
  • Registered and Licensed Clubs Award 2010 (Clubs Award); and
  • Restaurant Industry Award 2010 (Restaurant Award).

Whilst not all classifications within these awards were affected, the determination scaled back rates between an average of 25% – 50%. The new rates, as explained in our previous blog, were introduced from 1 July 2017 and the changes to Sunday rates are to continue to be phased in until 2020.

Two more decisions reviewing modern awards were published on 17 March 2017 and 5 June 2017 regarding late night penalties and the transitional arrangements to implement the changes, respectfully. These preceded the FWC’s determinations made on 21 June 2017 reducing penalty rates in the above modern awards (excluding the Clubs Award) on Sundays, public holidays and other entitlements.

The determinations were welcomed by the Federal Government and businesses yet angered unions and workers. As the first of its kind and potentially the beginning of a trend, the decision was appealed by two unions, United Voice and the  Shop, Distributive and Allied Employees Association (the Applicants) and heard in the FCAFC in late September 2017.

The FCAFC decision

The Court comprised of Justices North, Tracey, Flick. Jagot and Bromberg, dismissed the Applicants’ appeal. The subject of the appeal was the FWC’s 21 June 2017 determinations varying the awards, not the decisions published prior to this because the determinations affect the immediate rights and interests of the Applicants.

The Applicants brought the appeal on several grounds. Ground one raised the issue of whether throughout the FWC’s decision-making process it miscarried for not appreciating that the review of awards required under section 156 FW Act requires a material change in circumstances since the last review of the award. The second contention was based on the FWC’s failure to understand the nature of the inquiry to meet the modern awards objective required under section 134 FW Act. The Applicants argued the FWC split the “modern awards objective” under section 134 FW Act so that it failed to “provide a fair and relevant minimum safety net of terms and conditions” when considering the factors laid out in sections 134(1)(a)-(h). In grounds three to six the Applicants’ raised concerns about the way in which the FWC treated the living standards and the needs of the low paid whom these awards affect. The FCAFC noted how and where, over several months the FWC correctly considered the adverse implication of the cuts and how their phased implementation would provide an easing of the changes.

Importantly the FCAFC noted that the task of ensuring modern awards are compliant with section 134(1) FW Act standards and making a call as to what is fair and relevant is not part of its remit. Rather the Court commended the FWC’s decisions, remarking that great weight can be given to the factual assessments made by the Full Bench of the FWC.

The Court rejected all grounds on which the FWC’s determinations were challenged by the Applicants and dismissed the appeal.

What does this mean for employers?

The transitional arrangements decision handed down on 5 June 2017 will continue to be rolled out until 2020. The public holiday rates reduction occurred on 1 July 2017 without any transitional arrangement. The Sunday penalty rate cuts will continue to be phased in at the beginning of the next three financial years under transitional arrangements. Employers need to understand the impact of the transitional arrangements and ensure they remain up-to-date on changes where they are covered by the impacted modern awards.

Read the decision here: [2017] FCAFC 161

The Elephant in the Room has Teeth

Employers across Australia will be facing increased scrutiny, investigation and liability arising from the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (the Bill), which passed the Senate last night. These new laws will place significant pressure on franchisors and holding companies which to date may have turned a blind eye to the practices of their franchisees.

The Bill amends the Fair Work Act 2009 (Cth) (the FW Act) to:

  1. introduce higher penalties for serious breaches of workplace laws;
  2. increase penalties for record keeping failures;
  3. make franchisors and holding companies responsible for underpayments by their franchisees and subsidiaries where they knew, or ought reasonably to have known, of the contraventions and failed to take reasonable steps to prevent them;
  4. expressly prohibit employers from unreasonably requiring their employees to make payments; and
  5. strengthen the powers of the Fair Work Ombudsman to investigate breaches of workplace laws which exploit vulnerable workers.

The Bill has significant implications for franchisors, holding companies and employers in respect of compliance with the FW Act.

The Bill is the result of the government’s recent history of inquiries, trials and reports surrounding workplaces exploiting vulnerable workers. To push out this behaviour, the law has been modified and strengthened to put the onus on those connected to a company’s or an individual’s contraventions of the FW Act.

Implications for Employers

Due Diligence

A key change is the new positive obligation on holding companies and franchisors. They are now required to be aware of, and take reasonable steps to manage the risk of, breaches of the FW Act within their business networks and down their supply chains. The new section 558B of the FW Act makes holding companies and franchisors liable for contraventions including but not limited to breaches of:

(a) the National Employment Standards;
(b) modern awards;
(c) enterprise agreements;
(d) national minimum wage orders;
(e) methods and frequency of payment and payment specified in modern awards; and
(f) enterprise agreements,

made by subsidiaries or franchisees in their networks.

What should you do?

  • Ensure systems are in place which are able to identify non-compliance with workplaces laws including:
    • reporting structures;
    • regular auditing, and
    • independent review of time and wage records.
  • If a breach is discovered, take swift and immediate action to deal with the problem – don’t “turn a blind eye” to the issue. Document the steps you have taken to protect against accessorial liability.
  • Review franchising agreements to ensure they adequately protect the interests of the franchisor’s now more onerous obligations including a right to be provided with information and documentation on request relating to compliance.

Increased penalties

The penalties that a holding company or franchisor can be liable for have been increased for “serious” contraventions of the FW Act, with even higher penalties where the contravention was:

(a) deliberate; and
(b) part of a systematic pattern of conduct.

Serious contraventions involving deliberate conduct of those civil penalties outlined above can result in a 600 penalty unit fine for individuals (or $126,000) and 3,000 penalty unit fine (or five times higher) for bodies corporate (or $630,000). These amounts are ten times a penalty that normally applies.

In determining what constitutes a “systematic pattern of conduct”, a Court can have regard to:

  • the number of contraventions of the FW Act;
  • whether the contraventions have occurred for a long period of time or after complaints were made;
  • whether multiple employees were affected; and
  • whether accurate employee records have not been kept, pay slips not been issues, making underpayments hard to establish.

Only contravening conduct that occurs after commencement is captured by these provisions.

What should you do?

  • Given the significantly higher penalties, there has never been a better time for a “spring clean” of current practices. Employers should take steps to engage internal or external assistance to ensure compliance with workplace laws.

 

 

 

Significant and systematic micromanaging valid reason for dismissal

The Fair Work Commission has upheld an employer’s decision to dismiss an employee who engaged in “significant and systematic micromanaging” of his employees.  The employer dismissed the employee following a workplace investigation, on the basis that he had engaged in breaches of relevant workplace policies regarding bullying and harassment.

Complaints

Several employees working under the supervision of the employee made complaints. A number of complaints related to specific incidents, including that the employee had responded to an employee’s group email publicly with “why did you send this?” and had then spoken to the relevant employee about the email in an aggressive and threatening tone. Other aspects of the employee’s micromanaging included that he had limited employees’ contact with internal and external stakeholders by requiring permission to speak to stakeholders, started attending internal stakeholder meetings with employees (who had previously attended meetings alone), and required employees to complete onerous tracking and other administrative tasks.

Micromanagement had the effect of bullying

The employee did not dispute the contents of the complaints, but rather their characterisation as bullying behaviour.  The employee claimed that the relevant employees had not raised these issues with him directly prior to making a formal complaint and that he had been unaware that his behaviour had an adverse effect.

The Commission found that despite the possibility of the employee being “well-intentioned”, the cumulative effect of his conduct and behaviour was one of significant and systematic micromanaging that breached the employer’s Code of Conduct, and bullying and work, health and safety policies.

The decision indicates that an employee’s intention may not be relevant in considering whether conduct is bullying.  Rather, the Commission will consider the impact of the behaviour in question on affected employees.

see Carroll v Karingal Inc [2016] FWC 3709

Sobering effects of terminating for breach of alcohol policies

The Fair Work Commission has upheld an employee’s application for unfair dismissal following a positive blood alcohol test at work.

The employee, a maintenance worker, underwent a pre-work blood alcohol test.  His blood alcohol content first showed at 0.013%, and 0.006% some 30 minutes later.  The employee was stood down for the day, and his employment was terminated summarily 4 days later for breach of the company’s zero-tolerance Drug and Alcohol Policy.

Whilst the employee argued that his blood alcohol readings were low and still within legal limits to drive a B-double truck, Commissioner Bissett considered this as a rather dismissive attitude towards workplace health and safety on the part of the employee. The Commissioner also acknowledged that the incident was a clear breach of the Company’s zero-tolerance policy which required employees to present to work with 0.000% blood alcohol.

However, the employer relied upon other grounds to terminate, namely an earlier first and final warning for a safety breach, which the Commissioner found to have been inappropriate.  Also in issue was the fact that the employee did not appear to have been given an opportunity to respond to all of the matters being considered in respect of the decision to terminate, including the prior warning. Accordingly, where the first and final warning was found to have been harsh in the circumstances, and given the nature of the readings in question, the Commissioner found the dismissal to have been unfair.

The employee was not reinstated but was awarded compensation of $11,507.16.

The FWC has been increasingly willing to confirm the appropriateness of dismissals for breach of zero-tolerance work health and safety policies (see an earlier post on this topic at: Summary for breach of employer drug policy not unfair).

However, this decision suggests that, despite the existence of zero-tolerance drug and alcohol policies,  employers should still consider the appropriateness of dismissal for a “first offence”, particularly for otherwise lawful, low level breach.

Ingham v Metro Quarry Group Pty Ltd [2015] FWC 6472 (29 September 2015)