Accessorial liability: increased fines on the horizon and payroll providers in the gun

You’d have to be living under a rock to be oblivious to the 7-Eleven scandal involving the underpayment of migrant workers by dodgy franchisees.  And 7-Eleven isn’t the only employer to recently be caught up in underpayment scandals.

Vulnerable Workers Bill

In response, the Turnbull government has introduced the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 in an attempt to, amongst other things, sheet home responsibility to franchisors.

Having now been through a Senate inquiry, it appears the Bill has bi-partisan support.  So what is the Bill all about?

The Bill seeks to insert a new provision into the Fair Work Act 2009 (Cth) to provide that a responsible franchisor entity will be responsible for the contraventions by members of the franchise network where:

  • the franchisee contravenes a civil remedy provision (such as a failure to make payments in accordance with a modern award or comply with record keeping obligations); and

  • the responsible franchisor:

    • knew or could reasonably be expected to have known that the contravention by the franchisee entity would occur;  or

    • knew or could reasonably be expected to have known that a contravention by this franchisee entity of the same or similar character was likely to occur

However, a responsible franchisor will not be liable if it took “all reasonable steps” to prevent the contravention by the franchisee. 

So what, you say.  I’m not a franchisor.  This has no relevance to me.  Wrong!

One of the most significant aspects of the Bill is the introduction of the concept of a “serious contravention” in relation to all breaches of civil remedy provisions.  A serious contravention is one which is deliberate, or part of a systematic pattern of conduct relation to one or more other persons.  The penalty has increased ten fold: from up to $10,800 to $108,000; or from up to $54,000 to $540,000 for a pecuniary penalty.

Payroll provider pinged

Which is probably the only solace for Ezy Accounting 123 Pty Ltd following its failed defence of a prosecution under the existing accessorial liability provisions:  at least it was pinged at the current penalty level.

In Fair Work Ombudsman v Blue Impression Pty Ltd & Ors, Ezy Accounting was in the gun as a provider of payroll services.  The FWO maintained that Ezy had actual knowledge of the factual matrix of the contraventions admitted by the employer, including award coverage and payment of a flat rate of $16.50 per hour despite work being performed on weekends, public holidays and during evening shifts.  Consequently, the FWO asserted that Ezy was involved in the contraventions.

Ezy painted a different picture, suggesting that it was a mere book keeper providing a data entry function to produce payroll records.  It stated that it did not have actual knowledge of, nor did it intentionally participate in, the contraventions.

The Court rejected Ezy’s defence.  Ultimately it came unstuck because it transpired that it has been involved in a FWO audit on behalf of the same employer some years before, which required it to check the correct award rates.  The Court concluded that Ezy (through a particular employee) “deliberately shut its eyes to what was going on in a manner that amounted to connivance in the contraventions”.  Woah!

The take home message?

The stakes are getting higher, and the net of culpability is widening.  You might want to consider an audit of your workplace and practices before the FWO knocks on the door.

Author: Amber Sharp

Leading Partner: James Mattson