Paul Ronfeldt and Andrew Cardell-Ree

Fair Work Act compliance risks increase tenfold – Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017

Paul Ronfeldt and Andrew Cardell-Ree

7 September 2017

Award Conditions Employment Policies Enterprise Bargaining Industrial Relations

Employers and franchisors need to be aware of the significant changes they will need to make in the short term after the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 passed this week.

These amendments are scheduled to commence in the next couple of weeks.

What are the changes?

Once these changes to the Fair Work Act (FW Act) come into effect:

  • Serious contravention – a person who knowingly contravenes an industrial instrument or the FW Act as part of a systematic pattern of conduct will commit a “serious contravention” and may be subject to a civil penalty of up to $540,000 for corporations and up to $108,000 for individuals, which represent a ten-fold increase in the maximum penalty available;
  • Reverse onus if no records – critically, an employer that, without reasonable excuse, fails to produce or give access to wage records will bear a reverse onus, requiring the employer to disprove any allegation of underpayment or other listed non-compliance with workplace laws;
  • Significant powers – the Fair Work Ombudsman (FWO) will have greatly expanded evidence-gathering powers, to help it investigate and prosecute employers and franchisors, including new powers to compel persons to produce documents and answer questions under oath, with a risk of prosecution for untruthful information or statements;
  • Chain of responsibility for franchisors and holding companies – franchisors and their officers, and holding companies and their officers, will need to demonstrate ongoing, proactive and preventative diligence, through a chain of responsibility, to educate and prevent franchisees and subsidiaries from underpaying their employees or other FW Act breaches;
  • Reasonably expected or actual knowledge for franchisors and holding companies – a holding company or franchisor can be held liable for listed workplace non-compliance by subsidiary companies or franchisee entities if it or its officer knew or could reasonably be expected to know that the breach, or a similar breach, would occur; and
  • Claims against a franchisor – an underpaid employee of a franchisee / subsidiary can sue the franchisor / holding company (as applicable) for any underpayment, but even if the franchisor / holding company can recover any amount of the underpayment from the franchisee, the franchisor / holding company cannot recover any civil penalty imposed on it.

What does this mean for employers?

More so than ever before, employers, human resource managers and other corporate officers are exposed to the risk of very significant fines for breaches of awards, enterprise agreements, the National Employment Standards and other aspects of the FW Act.

What does this mean for franchisors?

The changes go behind the corporate veil and impose on companies and franchisors a positive duty to prevent subsidiaries and franchisees breaching awards, enterprise agreements, the National Employment Standards and other listed aspects of the FW Act, through active diligence, and expose holding companies and franchisors, and their officers, to the risk of significant fines for failing to take the required preventative steps.

These laws will lead to dramatic changes in franchising and in separating corporate risk.

Aside from the question of who pays for the additional compliance costs, important questions include:

  • who is and is not a ‘franchisee’ whose business is ‘substantially or materially associated with intellectual property relating to the franchise’, and hence who is a franchisor and subject to the amendments; and
  • whether and if so when officers of a franchisor / holding company will be personally liable for a franchisee’s workplace indiscretions, apart from the franchisor / holding company.

Immediate compliance steps

What is clear is that employers and franchisors need to satisfy themselves that they, their franchisees and subsidiaries can demonstrate that:

  • their time and wage records meet the requirements of the FW Act and the Fair Work Regulations and show a correct application of all industrial instruments; and
  • they have appropriate arrangements in place to capture underpayment or similar complaints and have appropriate senior managers act on them promptly.

A carefully designed compliance program will be essential.

If you have any queries about the legislation or how it may impact your business, please do not hesitate to contact our Employment and Safety Team.