Following the outbreak of the 7/11 underpayments scandal in 2016, the Australian Government responded to the controversy by introducing the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (“Bill”). In September last year the Bill passed through parliament, bringing with it a series of significant amendments to the Fair Work Act 2009 (“FWA”) designed to prevent the deliberate and systematic exploitation of vulnerable workers, such as migrants and those who work in the franchisee sector.

All employers, particularly franchisors and holding companies, should be aware of the changes and how they are likely to affect business operations. Those who breach the new laws can expect to face hefty penalties, along with the wrath of the all-powerful Fair Work Ombudsman (FWO), who does not take contraventions of Australian workplace law lightly. The FWA amendments include the following:

1. Introducing higher penalties for ‘serious contravention’ of workplace laws

Employers who engage in ‘serious contraventions’ risk facing substantial financial penalties, which now stand at $126,000 per contravention for individuals and $630,000 for corporations. A contravention is only a ‘serious contravention’ if the conduct was deliberate and part of a systematic pattern of conduct relating to one or more other persons.

Furthermore, the amendments allow that a person will be found accessorily liable for the serious contravention of another person where it is established that the accessory knew that the contravention was a serious contravention.

1. Extending liability for franchisors and holding companies for contraventions

The amendments provide that franchisors and holding companies will also be held responsible for the contraventions of their franchisees or subsidiaries if they ‘knew or could reasonably have been expected to have known’ that the contravention, or a similar contravention, would occur.

To eliminate the risk of liability, the franchisor or holding company must be able to demonstrate that it has taken reasonable steps to prevent the contravention from occurring. When determining whether ‘reasonable steps’ were taken, a court may consider factors such as the level of influence or control the franchisor has over the franchisee’s activities and whether the franchisor took any action directed at ensuring franchisees had a reasonable knowledge and understanding of the relevant laws.   

1. Reverse onus of proof for unmet record keeping

Where an employer has failed to keep employee records, and it is alleged that an employer has contravened the FWA, such as through wage underpayment, the onus of proof will revert to the employer to disprove the allegation. The employer will have to show that no underpayment has occurred, and that they have paid the employee accurately. Having said that, the reverse onus will not apply if the employer had a reasonable excuse as to why their record keeping requirements were unsatisfactory.  

1. Prohibition against ‘cash-back’ arrangements

Employers are strictly prohibited from operating ‘cash-back’ schemes, which requires employees to make wage repayments back to their employer. Certain 7/11 franchisees adopted these activities which came to light in 2016.

1. Enhanced Fair Work Ombudsman powers

Importantly, the amendments strengthen and improve the investigative and evidence-gathering powers of the FWO. Following approval from the Administrative Appeals Tribunal (AAT), the FWO may issue a notice which will require persons to provide information, documents or attend and answer questions relevant to an investigation, even if doing so incriminates them. This amendment represents a significant modification to the previous position, where a person had the right to silence and could not be compelled to answer questions.

Lessons for Employers:

• Employers must know the award applicable to their employees to ensure compliance. Employees are to be afforded the minimum entitlements set out in the award.
• Are your records accurate and up to date? Employers generally should review their record keeping system and the way pay-slips are issued. Employers who keep good records will be in the best position possible to defend underpayment claims.
• If the FWO undertakes an investigation within your business, employers are advised to provide as much assistance as possible to allow the FWO to conduct their investigation and collect evidence.
• HR advisers, managers and recruiters should be wary of the advice they provide their employers or clients as there is now greater risk for personal liability.

Lessons for Franchisors and Holding Companies:

• Review franchisor agreements and ensure provisions are included which deal with obligations upon franchisees to follow the FWA and consequences for breaches (e.g. termination of franchisee agreement).
• Franchisors and holding companies cannot turn a blind eye to activities of franchisees or associated entities. They are required to take reasonable steps to prevent contraventions of the FWA and take necessary measures to confirm compliance with workplace laws.
• Franchisors should consider providing training to franchisees on workplace law issues.