New laws targeting worker exploitation set to commence

Services: Intellectual Property & Technology, People & Workplace, Restructuring & Insolvency
Industry Focus: Financial Services, Insurance, Life Sciences & Healthcare, Real Estate & Construction
Date: 08 September 2017
Author: Mei-Lim Smith, Associate and Fay Calderone, Partner
T +61 2 8233 9624
T +61 2 8233 9617
M +61 417 426 039
T +61 2 8233 9803
M +61 427 229 971

All businesses should be reviewing the way they manage the risk of underpayment and worker exploitation as the Federal Government’s reforms to protect vulnerable workers are about to take effect.

The Fair Work Amendment (Protecting Vulnerable Workers) Bill (Bill) has now passed both Houses of Parliament and will amend the Fair Work Act 2009 (Cth) (Fair Work Act) once it receives Royal Assent, which is expected to happen imminently.

The Bill will introduce the following key changes:

1. Higher penalties for serious contraventions

Under the new laws there will be a tenfold increase in penalties available under a new category of ‘serious contraventions’ of the Fair Work Act. For each such contravention, the maximum penalty will be $630,000 for companies and $126,000 for individuals.

These higher penalties will apply where the contravention:

  • relates to a civil penalty provision, such as a breach of the National Employment Standards, an award, enterprise agreement or an employer’s record keeping obligations, and

  • was knowingly committed as part of a systematic course of conduct.

The new laws recognise that the new category of ‘serious contraventions’ can capture unlawful conduct which is expressly, tacitly or impliedly authorised by a company.

This means that significantly higher penalties can now be imposed on companies and individuals who are involved in repeat instances of underpayment or other unlawful conduct which is perpetuated by policies or practices that are inconsistent with workplace laws.

2. Direct liability of franchisors and parent companies for underpayments

New offences have also been introduced to make franchisors and parent companies directly liable for underpayments and other breaches of the Fair Work Act by their franchisees and subsidiaries where they knew or should have reasonably known of the contraventions and failed to take reasonable steps to prevent them.

The new laws do not impose a strict liability regime. Rather, the new offences will capture franchisors and parent companies who have a significant degree of influence or control over their business networks and who fail to take reasonable steps to prevent non-compliance.

While the legislation does not specify what will constitute a ‘significant degree’ of influence or control, parent companies are likely to satisfy this requirement in most cases as they, by definition, have control over the affairs of their subsidiaries.

The legislation does identify factors that will be relevant in assessing whether ‘reasonable steps’ have been taken, which include:

  • the size of the franchise or group and the resources available to it
  • the extent to which the franchisor or parent company had the ability to influence or control the contravening conduct
  • whether any proactive compliance measures were put in place to prevent the contravention
  • whether the franchisor or parent company had contractual arrangements or policies in place which required its franchisees and subsidiaries to comply with the Fair Work Act
  • whether any processes existed for receiving and addressing possible complaints about alleged underpayments and other breaches of the Fair Work Act within the franchise or the group.

3. Sharper focus on record keeping

Employers should review their compliance with their record keeping obligations under the Fair Work Act and ensure they are keeping time and wages records for a period of seven years.

While the record keeping obligations themselves have not changed, the consequences of breaching those obligations have become greater than ever. The maximum penalties that can be imposed on employers who fail to keep proper records will double to $63,000 for companies and $12,600 for individuals. Penalties that can be imposed on employers who give false or misleading pay slips to employees, or who provide the Fair Work Ombudsman with false information, will also increase.  

In addition, employers who do not have a reasonable excuse for failing to meet their record keeping obligations will now face a reverse onus of proof and will have to disprove wage claims which are made in court.

4. Prohibition on cash back arrangements

The new laws strengthen the existing restrictions on employers making unlawful deductions from employees’ pay by expressly prohibiting employers from unreasonably requiring existing or prospective employees to make payments which benefit their employer or a related party.

This change is intended to stop employers from demanding money from prospective employees as a condition of employment or engaging in unlawful cash back arrangements by requiring employees to pay a portion of their wages back in cash in order to disguise underpayments. 

Be prepared to take action

The Fair Work Act provisions will be more onerous than ever and the consequences of non-compliance more significant, not only for employers but also for franchisors and parent companies. Business leaders and HR professionals are cautioned to consider any gaps in their compliance systems and to put in place measures to respond to these changes and minimise exposure.

For further information, please contact:

Fay Calderone | Partner

T +61 2 8233 9605 | M +61 456 780 671


Leonard Lozina | Partner

T +61 2 8233 9617 | M +61 417 426 039


Maree Skinner | Partner

T +61 2 8233 9803 | M +61 427 229 971


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