Employment Law – Update – Increased Penalties for Employer Breach of the Fair Work Act

1.   There has been much publicity recently concerning the 7 Eleven franchise system and its franchisee’s alleged underpayment of wages to employees. The coverage has been devastating for not only the Franchisor (for example the condemnation in the market place, resignation of key executives and the unquantified loss in brand value) but also for the franchisees within the system and arguably the franchise sector as a whole.

2.   The exploitation of vulnerable workers has been examined in a range of reports, including the Senate Education and Employment References Committee’s report entitled A National Disgrace: The Exploitation of Temporary Work Visa Holders, March 2016; the Fair Work Ombudsman’s A Report of the Fair Work Ombudsman’s Inquiry into 7-Eleven, April 2016 and A Report on the Fair Work Ombudsman’s Inquiry into the labour procurement arrangements of the Baiada Group in New South Wales, June 2015; and the Productivity Commission’s Productivity Commission Inquiry Report: Workplace Relations Framework, No. 76, November 2015.

3.   The Inquiry into 7-Eleven report, for example, revealed not only systematic underpayment of migrant workers, but also a practice of some franchisees paying their employees the lawful rate, but then coercing them to pay back a certain proportion of their wages to the employer in cash. In some cases, records were deliberately falsified to disguise the underpayments and leave the impression that workers were being paid their lawful entitlements. A series of cases involving the exploitation of franchise workers (both preceding and following the 7-Eleven scandal) demonstrate more can be done to protect vulnerable workers.

4.   In response, the Turnbull Government introduced and subsequently bought into law the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017.  This Act amends the Fair Work Act (Cth) 2009 (FWA) to protect vulnerable workers by:

• Introducing a higher scale of penalties for ‘serious contraventions’ of prescribed workplace laws.

• Increasing penalties for record-keeping failures and reversing the onus of proof;
• Making franchisors and holding companies responsible for underpayments by their franchisees or subsidiaries where they knew or ought reasonably to have known of the contraventions and failed to take reasonable steps to prevent them. The new responsibilities will only apply where franchisors and holding companies have a significant degree of influence or control over their business networks.

• Expressly prohibiting employers from unreasonably requiring their employees to make payments (e.g. demanding a proportion of their wages be paid back in cash).
• Strengthening the evidence-gathering powers of the Fair Work Ombudsman to ensure that the exploitation of vulnerable workers can be effectively investigated.

Increasing maximum penalties for contraventions of certain civil remedy provisions

5.   The FWA now has an increase in the maximum civil penalties for certain ‘serious contraventions’ of the Act. The type of serious contraventions that attract the higher penalties are:

• subsection 44(1) (Contravening the National Employment Standards);

• section 45 (Contravening a modern award);
• section 50 (Contravening an enterprise agreement);
• section 280 (Contravening a workplace determination);
• section 293 (Contravening a national minimum wage order);
• section 305 (Contravening an equal remuneration wage order);
• sections 323, 325 and 328 (Method and frequency of payment, Unreasonable requirements to spend amount etc, Employer obligations in relation to guarantee of annual earnings); and
• sections 535 and 536 (Employer obligations in relation to employee records and pay slips).

6.   To prove “serious contravention” various steps are needed to be taken.

(a) First, identify the relevant proscribed conduct in the applicable civil penalty provision (e.g. a term of a modern award has been contravened under section 45; or employee records have not been made or kept under section 535(1)).

(b) Second, consider whether the conduct was deliberate.  The term ‘deliberate’ is not defined, but is intended to be read synonymously with the term ‘intentional’ that is used elsewhere in the FWA.  Under Section 577B a contravention by a body corporate is deliberate if it expressly, tacitly or impliedly authorised the contravention. The authorisation may be given by an individual within the organisation (see section 793); or via a policy, rule, course of conduct or practice that exists within the organisation.
(c) Third, whether the conduct formed part of a systematic pattern of conduct. That is a recurring pattern of methodical conduct or a series of coordinated acts over time. It does not encompass ad hoc or inadvertent conduct. The types of conduct likely to be considered part of a systematic pattern of conduct if:

• there are concurrent contraventions of the Fair Work Act occurring at the same time (e.g. breaches of multiple award terms and record-keeping failures);

• the contraventions have occurred over a prolonged period of time (e.g. over multiple pay periods) or after complaints were first raised;
• multiple employees are affected (e.g. all or most employees doing the same kind of work at the workplace, or a group of vulnerable employees at the workplace); and
• accurate employee records have not been kept, and pay slips have not been issued, making alleged underpayments difficult to establish.

7.   New subsection 325(1) of the FWA prohibits employers from directly or indirectly requiring an employee to give ‘cashback’ or pay any other amount of the employee’s money or the whole or any part of an amount payable to the employee in relation to the performance of work (whether to the employer or another person) if:

(a) the requirement is unreasonable in the circumstances; and

(b) the payment is directly or indirectly for the benefit of the employer or a party related to the employer (e.g. an owner or director of an employer, or a relative of the owner or director of an employer).

8.   The prohibition applies whether the requirement is made directly or indirectly by the employer, or an officer, employee or agent of the employer (see section793 FWA). It applies even if the employee refuses or fails to make the payment that was required of them.

9.   Asking an employee for ‘cashback’ so the person can keep their job, or with the sole purpose of undercutting their minimum entitlements under the Fair Work Act, will always be unreasonable and prohibited under section 325(1).  Asking an employee for any amount to be spent, or money to be paid, out of the employee’s pocket in a way which involves undue influence, duress or coercion, will always be unreasonable and prohibited under section 325(1).

10.   The FWA now provides for the following penalties:

(a) for defaults deemed to be not serious contraventions, up to $12,600 per contravention for an individual and $63,000 per contravention for companies;
(b) for serious contraventions, $126,000 per contravention for an individual and $630,000 per contravention for companies

11.   All employers should review their employment arrangements to ensure compliance with their obligations. In circumstances here there may be underpayment or non compliance (such as provision of payslips), new processes should be immediately adopted.