Implications for Australian businesses following release of landmark modern slavery and supply chains report

The Parliamentary Committee inquiring into whether a Modern Slavery Act should be introduced in Australia has now released its final report.

The Committee heard that Australian business supply chains are closely linked with countries and businesses in the Asia-Pacific region, and many products sourced from that region are at high risk of being produced by modern slavery (that is, serious exploitation such as slavery, forced labour and human trafficking), particularly at lower tiers of supply chains.

The Committee recommends a mandatory global supply chain reporting requirement for certain businesses operating in Australia.

The Australian Government will now consider the Committee’s recommendations. Draft legislation is expected in the first half of 2018.

Background

In February, the Committee commenced its inquiry into establishing a Modern Slavery Act in Australia. This included consideration of whether a modern slavery supply chain reporting requirement for business should be adopted in Australia. This would require businesses to disclose publicly their actions to address modern slavery in their supply chains.

In its interim report in August, the Committee expressed its strong support for the introduction of a mandatory reporting requirement for entities operating in Australia. Following the Committee’s interim report, the Australian Government announced its support for a reporting requirement and released a proposed model.

The Committee, in its final report, has responded to the Australian Government’s proposed model.

This alert will explain the Committee’s recommendations and actions business needs to take.

Committee recommendations

Application

The Australian Government proposed that the reporting requirement apply to bodies corporate, unincorporated associations, superannuation funds and approved deposit funds.

The Committee recommends a broader range of business entities be covered by the new laws, including, sole traders, trusts, religious bodies, public bodies, Commonwealth Government agencies and the Australian Government itself.

Entities required to report

The Australian Government proposed that all entities headquartered in Australia, or entities that have any part of their operations in Australia, and which meet an annual revenue threshold, be required to report on the steps they have taken to eliminate modern slavery in both their operations and supply chains.

The Committee supports entities operating in Australia, regardless of where they are headquartered, being required to report. The Committee also agrees that reports should discuss modern slavery in both the operations and supply chains of entities.

Revenue threshold

The Australian Government proposed that the revenue threshold be at least $100 million global revenue and allow for entities below this threshold to opt in to the reporting requirement.

The Committee considers a threshold of $50 million global annual revenue would be most appropriate and provide for international consistency. The Committee also supports an opt in mechanism.

Reporting areas

The Australian Government proposed that entities report on:

  • their structure, operations and supply chains;
  • the modern slavery risks present in their operations and supply chains;
  • policies and processes to address modern slavery and their effectiveness; and
  • due diligence processes relating to modern slavery.

The Committee suggests including an additional reporting area – further action taken to eradicate modern slavery.

Further, the Committee recommends enabling smaller entities to provide modern slavery statements to other entities as evidence of them having found no modern slavery in their own supply chains.

Supply chain

The Australian Government indicated that the definition of supply chain should extend beyond tier 1 suppliers.

The Committee considers the definition of supply chain should be consistent with international standards. International standards may be found in numerous instruments, for example, the OECD Guidelines for Multinational Enterprises and the United Nations Guiding Principles on Business and Human Rights. Both instruments provide for a broader definition of supply chain that includes lower tier entities.

Due diligence

The Australian Government proposed that entities report on due diligence processes and their effectiveness.

The Committee considers a requirement for entities to report on their due diligence is an appropriate first step. The Committee recommends that any further measures, such as mandatory due diligence implementation, should be considered as part of a review after three years.

Approval

The Australian Government proposed that modern slavery statements be approved at the equivalent of board level.

The Committee supports this proposal.

Time frame for reporting

The Australian Government proposed the time frame for reporting to be within five months after the end of the Australian financial year.

The Committee agrees with this time frame. However, the Committee is also of the view that entities should have the option of making a supplementary modern slavery statement at any stage to address any changes in circumstances.

Penalties

The Australian Government did not propose to include punitive penalties for non-compliance.

The Committee recommends the introduction of penalties for entities that fail to report, applying to the second year of reporting onwards. The Committee called upon the Australian Government to consider the appropriate level of penalties and how penalties should be administered, including a possible role for the Australian Securities and Investments Commission.

Monitoring and evaluation

The Australian Government proposed that entities be required to publish modern slavery statements on their websites and that the Australian Government provide a publicly accessible and searchable central repository of such statements.

The Committee supports this approach. In the event that an entity does not have a website, the Committee recommends that the statement be available in its annual report or other public document. The Committee further recommends that the central repository contain a list of entities required to report, entities that have reported, and entities below the threshold who have reported voluntarily.

The Australian Government also proposed mechanisms for independent oversight of the reporting requirement.

The Committee supports the establishment of an Independent Anti-Slavery Commissioner to provide oversight of the reporting requirement.

Phased introduction

The Australian Government proposed a phased introduction of the reporting requirement to ensure the business community had sufficient preparation time.

The Committee supports the phased introduction of penalties, not the requirement to report.

Other recommendations

The Committee recommended that the Australian Government publish and regularly update a list of at-risk products, industries and population groups both within Australia and internationally, and consider legislated import restrictions on goods produced using modern slavery, similar to the approach taken in the United States.

Actions businesses needs to take

The proposed modern slavery supply chain reporting requirement means businesses will need to gain visibility into their global supply chains and take action to manage identified risks. This will involve a range of operational measures and updating of supplier contracts.

Operational measures include:

  • establishing a policy for responsible supply chains that articulates a commitment to responsible business conduct in its own operations and sets out expectations of suppliers;
  • undertaking due diligence, such as pre-screening of suppliers and supplier audits;
  • designing and implementing a strategy to respond to identified risks, which may involve a range of responses such as corrective actions plans, training and assistance to suppliers;
  • verifying that the actions taken have been effective, which involves the development of performance indicators and data monitoring;
  • training key personnel in the entity’s own business as well as suppliers on how to identify and mitigate modern slavery
  • establishing a clear chain of responsibility and assigning senior level approval for policy oversight and in relation to the modern slavery statement; and
  • developing a web page dedicated to the publication of the modern slavery statement.

Supplier contracts should be updated to include:

  • audit rights, including the right to undertake announced and unannounced audits, audits by third parties, and the requirement for full cooperation;
  • immediate notification of actual or potential non-conformance with policy;
  • commitment to follow corrective action plans in instances of non-compliance with policy;
  • right to suspend or terminate the contract for failure to meet policy standards, failure to cooperate with an audit process or follow a corrective action plan; and
  • right to inform relevant authorities.

Not so sunny in the Sunshine State for unlicensed labour hire providers

Not so sunny in the Sunshine State for unlicensed labour hire providers

The Queensland government passed new laws recently to promote the integrity of the labour hire industry and protect workers from exploitation by providers of labour hire services. On 13 September 2017, the Labour Hire Licensing Act 2017 (Qld) (LHL Act) took effect.  The LHL Act establishes a new licensing scheme to regulate the provision of labour hire services in Queensland.

What does the LHL Act do?

The LHL Act:

  • requires any person who provides labour hire services in the state of Queensland to hold a licence; and
  • makes it unlawful for any person to enter into any arrangement with an unlicensed provider of labour hire services in Queensland.

The licensing scheme is intended to prevent the exploitation of workers in Queensland by labour hire providers. The LHL Act imposes a system whereby any person applying for a licence must establish they are a “fit and proper person” to provide labour hire services.  In determining whether an individual is a fit and proper person to provide labour hire services, the following matters will be relevant:

  1. The person’s character including, for example, the person’s honesty, integrity and professionalism.
  2. Whether the person:
    • has a history of compliance with relevant workplace laws (including for example record keeping, superannuation, tax and health and safety); or
    • is able to demonstrate an ability to comply with relevant laws.
  3. Whether a person has been convicted of an offence against a relevant law or another law that affects the person’s suitability to provide labour hire services.

The LHL Act imposes conditions upon licensees with respect to compliance with relevant laws.

Failure to comply with the LHL Act

Where a person either:

  1. provides labour hire services without a licence; or
  2. enters into an arrangement with an unlicensed provider of labour hire services,

the maximum penalty under the LHL Act is:

  • for an individual – 134 penalty units ($120,044.60) or three years imprisonment;
  • for a corporation – 3,000 penalty units ($365,070).

What should you do?

If you provide or receive labour hire services in Queensland, act now to:

  • ensure the provision of any services is appropriately licensed in accordance with the LHL Act; and/or
  • review existing arrangements with all labour hire service providers to ensure such providers are appropriately licensed in accordance with the LHL Act.

The LHL Act provides a defence in respect of persons who enter into arrangements with unlicensed providers being that the person must not, “without reasonable excuse”, enter into an arrangement with a provider who is unlicensed.  Notwithstanding, given the significant civil and criminal penalties associated with breach of the LHL Act, it is recommended that existing arrangements are reviewed to ensure compliance with the LHL Act.

General Protections Claims on the Rise

The Fair Work Commission’s latest Annual Report for 2016/2017, released last week, shows that general protections claims are on the rise. There has been a 12.3 per cent increase in general protections claims involving dismissals over the last year.

In 2015/2016 there were 3,270 general protections claims involving dismissals. In 2016/2017 this went up to 3,729 such claims.

What are the reasons for this increase, how many matters resolve at conciliation and is settlement always the best option? These aspects of general protection claims are explored below.

Reasons for the Trend

This trend towards employees favouring general protections claims over other types of legal claims is occurring for a number of reasons, including:

  • General protections applications are cheap to file, costing only $70.60;
  • The application form is easy to prepare and legal advice is not necessarily required;
  • There is little commitment required from individuals lodging an application in the early stages, as the matter goes straight to a telephone conciliation (rather than a face to face conference with a commission members as use to be the case);
  • If an employee cannot bring an unfair dismissal claim (because they earn above the high income threshold of $142,000 and are not covered by a modern award or enterprise agreement) this is often seen as the next best claim to lodge to try to put pressure on an employer to pay the employee some monetary compensation;
  • Pinpointing a workplace right that was exercised or was proposed to be exercised by the former employee is not that hard, it is connecting the workplace right to the dismissal that is more difficult and often overlooked;
  • There is a reverse onus of proof place on employers meaning employees do not have to prove the connection between the adverse action and the dismissal, rather the employer has to disprove this;
  • Unlike discrimination claims in the Australian Human Rights Commission conciliation is compulsory and takes place quickly within a month or two; and
  • It is a non-costs jurisdiction so employees have protection from being ordered to pay costs (except in limited circumstances).

Legislative Operation

Under the Fair Work Act 2009 (Cth), an employer must not take adverse action (including dismissal) against an employee because they exercised or proposed to exercise a workplace right (section 340).

Workplace rights are defined by section 341 of the Fair Work Act as:

  1. An entitlement to a benefit of, or role or responsibility under a workplace law or instrument or order made by an industrial body;
  2. An ability to initiate, or participate in, a process or proceedings under a workplace law or workplace instrument; and
  3. An ability to make a complaint or inquiry.

Some of the most commonly raised workplace rights include employees claiming to have been dismissed for complaining about their managers or colleagues or for seeking to exercise their right to a benefit under the Fair Work Act or a Modern Award such as payment of their salary or overtime.

In addition to the above, employers are also prohibited, under section 351 of the Fair Work Act, from dismissing an employee because of any protected attribute identified in state, territory or commonwealth discrimination law. This includes, but is not limited to, an employee’s race, colour, sex, age, disability, carer’s responsibility and martial status.

A reverse onus of proof rests on employers in general protections cases, to show that they did not dismiss the former employee for a prohibited reason. Accordingly, there is a evidentiary burden on employers to show that the real reason for dismissing an employee had nothing to do with the exercise or proposed exercise of a workplace right or a protected attribute, but was instead for another lawful reason.

Due to this reverse onus it is vital that employers ensure that they have lawful reasons for terminating employees. Notably, even if only one of a few reasons that a person’s employment is terminated is unlawful, the dismissal will still be found to fall foul of the legislative provisions. Clearly documenting what the reasons are, including having an internal paper trail setting this out, is essential. Following a fair process, even though the procedural fairness tests involved in an unfair dismissal case are not relevant here, is an important practice to try to ensure that the lawful reasons for dismissal are properly communicated and not lost in amongst the implementation of the decision to fire an employee.

Resolving Claims or Holding Out 

According to the Fair Work Commission’s Annual Report, of the 3,729 general protections claims involving dismissal, 73 per cent were resolved at conciliation, withdrawn or were refused an extension of time. This means that only 27 per cent may have been pursued to the next stage of potentially filing their claim in the Federal Courts.

77 per cent of the general protections matters involving a dismissal which did end up in conciliation resolved with either a monetary payment or both a monetary payment and some other non-monetary terms of settlement.

These settlement rates are high and show that employers are deciding, for the most part, to resolve these matters early on.

Despite the potential costs of defending a general protections claim involving a dismissal and the reverse onus of proof, employers should be cautious when dealing with dubious general protections claims. Paying a settlement amount for such a claim could lead to more problems. It could create a well trodden path for employees dismissed in the future to also expect a payout if they bring a claim (regardless of the merits).

While bringing a Fair Work Commission claim is relatively easy for former employees, the next stage of the process, taking the matter to the Federal Courts, is tougher and there are a number of disincentives to this process. The time involved to get to hearing, which is likely to be 12 to 18 months at a minimum, the legal costs if the former employee is represented, and the public nature of any decision are significant barriers to many former employees.

If a company is confident that its internal decision maker did not dismiss a former employee for a prohibited reason, and the employee is just trying on a claim to see where it gets them, holding firm and not making an offer to resolve it may be the most sensible strategy to deploy.

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