A New Compliance Framework: The Gloves Are Off!

April 5, 2018
A New Compliance Framework: The Gloves Are Off!

EMPLOYERS WHO UNDERPAY WORKERS AND FAIL TO FULLY OBSERVE ALL EMPLOYMENT OBLIGATIONS ARE NOW ON NOTICE TO IMMEDIATELY CHANGE THEIR PRACTICES. WES O’DONNELL, NATIONAL WORKPLACE RELATIONS MANAGER, EXPLORES WHY THE DAYS OF EXPLOITING THE HELPLESS ARE FADING FAST. YOU HAVE BEEN WARNED.

A great deal of attention has been given to the far reaching changes introduced by the Fair WorkAmendment (Protecting Vulnerable Workers) Act 2017 (Cth) (Act). The newly created serious contravention category, increased penalties, and enhanced powers of the Fair Work Ombudsman (FWO) is initially focused on the franchise industry, but we must not forget that the consequences will impact all employers.

The level of systemic abuse and underpayments revealed in the 7-Eleven exposé caught many by surprise and cut to the heart of our Australian values of a “fair days wage for a fair day’s work”. In the aftermath of the exposé, 7-Eleven acknowledged a degree of responsibility and established the 7-Eleven Wage Repayment Programme. The Programme was designed to independently consider, investigate and manage underpayment claims which have now exceeded $151 million.

The 7-Eleven Wage Repayment Programme has determined: 3,666 claims worth $151,026,9401

Apart from this enormous cost, 7-Eleven has suffered irreparable damage to its brand and reputation which can never truly be quantified. Against this experience you would assume that organisations would be undertaking exhaustive efforts to assess and address all levels of non-compliance within the business or franchise network, however, the unlawful and exploitative practices of a number of large national businesses continue to be exposed. The inevitable investigations and public enquiries which resulted from the 7-Eleven exposé called for greater protection of workers generally and for franchisors to drive improvements within the industry.

On 1 March 2017, the Government introduced draft legislation into the Parliament which addressed the community’s increasing concerns over the exploitation of vulnerable workers. The Act eventually passed through parliament, with a number of significant amendments, on 5 September 2017. The Act also introduced a number of significant amendments to the Fair Work Act 2009 (Cth) (FW Act) including:

AmendmentDescription
Serious ContraventionA new category of contravention has been created which arises where:1)    a person knowingly contravened a civil remedy provision of the FW Act; and2)    the conduct was part of a systematic pattern of conduct relating to one or more other persons.
Increased PenaltiesHigh penalties associated with serious contraventions have been listed as $126,000* for an individual and $630,000* for a corporation, which are 10 times larger than the penalty associated with a breach of a civil remedy provision.
Supply Chain LiabilityFranchisors and holding companies are now directly liable for a contravention for underpayment breaches by their franchisees or subsidiaries where:1)      there has been a breach of a civil remedy provision; and2)      the franchisor or holding company, or an officer of that business, knew or could reasonably have been expected to have known that the contravention by the franchisee or a similar kind of contravention would likely occur.
Avoidance of LiabilityA franchisor can avoid liability where it has taken reasonable steps to prevent the contravention by the franchisee.
Unreasonable Requirements to PayIn order to prevent the wage cash-back schemes uncovered through the 7-Eleven exposé, it is now unlawful for an employee (not just those in franchises) to pay part or all of their wage back to their employer.
Strengthens Powers ofthe FWOThe Act strengthens the investigative and evidence gathering powers of the FWO and introduces increased penalties for those who hinder or obstruct it.
Reverse Onus of ProofWhere an employer is required to keep, maintain or produce an employment record and/or issue a payslip yet fails to do so, the employer has the obligation of disproving an allegation raised in contravention proceedings.

 

How does this impact franchisors?

In short, the world as we knew it for franchisors has ceased to exist. Previously, franchisors were largely removed from any apparent influence, control and liability arising from their franchisees’ employment practices. This position has completely changed with franchisors now directly liable for the actions of its franchise network where it knew, or ought to reasonably have known, something was amiss. Naturally, this presents a significant liability for franchisor groups which often contain many thousands of employees within the network, and where the franchisor has historically had little or no detailed oversight of the employment practices within the individual franchise businesses.

Unfortunately many franchisors had their fingers crossed hoping that the legislation would be watered down and that business could continue as usual. Despite the draft legislation being debated for over six months, many franchisors were drawn into a false sense of security believing that amendments would be achieved which would significantly erode the direct impact upon franchisors and failed to implement appropriate strategies to prepare for the introduction of the Act.

Clearly the expected amendments did not eventuate, and has left many franchisors unprepared for the new regulatory regime. Those that sat on their hands with their fingers crossed may now be left in a precarious position.

How does this impact employers generally – not just franchisors?

There are two aspects of the Act which should cause all employers, not just those within the franchise industry, to be quietly concerned with their internal operations. The first is the creation of the “serious contravention” category and the very high penalties which attach to that category of contravention. With the FWO receiving an increased budget to escalate compliance campaigns, and with approximately 94% of all prosecutions commenced by the FWO involving an individual accessory (such as internal employees and external parties such as bookkeepers and advisors), all businesses, managers and external advisors responsible for people management activities are now on notice and should ensure compliant activities across all people management obligations.

The second, and perhaps more alarming aspect of the Act is the last-minute amendments which the Labor Party successfully introduced, that has effectively reversed the onus of proof in proceedings where there is a lack of employment records. Effectively this provision indicates that where there are proceedings relating to a contravention by an employer in relation to underpayment of wages, and the employer was required to maintain employment records, produce a record or provide payslips and it has failed to do so, then the obligation is upon the employer to disprove the allegation. This particular aspect of the new legislation should be of particular concern to any business which is not completely aware of their record keeping obligations or is not confident that their practices are completely compliant.

With the recent launch of the FWO’s Record my Hours App, employees can now record their daily start and finish times, store that information and compare it against their payslips and provide that data to the FWO where necessary. When faced with the comprehensive data captured by this tool, it will be very difficult for employers to disprove an underpayment allegation in the absence of employment records.

What must franchisors do in response?

Act now if you have not already done so! The only way a franchisor can avoid liability is to take “reasonable steps” to prevent contraventions by its franchisees.

Despite the views of some, inaction is not a strategy. As a minimum, franchisors are strongly advised to:

  • Issue a copy of the FWO’s Fair Work Handbook to all franchisees and include this as a standard induction procedure for all future/renewed franchisees.
  • Educate internal stakeholders of the changes in the legislative framework within which you are now operating;
  • Upskill your BDM network on how to support franchisees and identify non-compliant practices;
  • Undertake an audit of your franchise network and drive individual remedial action and education campaigns off the back of the audit results. Consideration should be given to a suitably experienced legal practice undertaking that review to ensure that the findings are covered by legal professional privilege; and
  • Implement an Employee Complaint Hotline.
  • Review and update franchise agreements to ensure that there is a:

1. clear obligation upon franchisees to comply with all workplace laws;

2. obligation upon franchisees to fully comply with any review, enquiry or direction of the FWO;

3. requirement upon franchisees to comply with any internally appointed audit or review process and produce employment records upon request;

4. right to terminate the franchise agreement in relation to serious non-compliance with workplace laws; and

5. suitably worded indemnities and guarantees in the event that any non-compliance is detected.

How will this play out in 2018?

While we do not have a crystal ball, there seems to be a number of certainties for 2018 and beyond, including:

  • Underpayments and systemic abuse of vulnerable workers will remain a key focus of many investigative media outlets;
  • The FWO will increase its compliance activities in the franchise sector and those businesses engaging vulnerable workers;
  • The FWO will continue its practice of prosecuting businesses and individual accessories with, we suspect a high profile prosecution in the immediate to short term which will receive significant media attention; and
  • Employees, both individually and collectively, will pursue underpayment claims directly against the franchisor.

Whether you operate within the franchise industry or not, the new regulatory regime introduced by the Act will have far reaching implications for you and your business. HR Assured, FCB Group’s comprehensive people management solution for SMEs, is currently being rolled out through a number of Australia’s largest franchise networks who wish to show they have taken all “reasonable steps”. Visit our webpage to see if this solution is right for your business.