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.