Out of Sight, Out of Liability?
By Lucienne Gleeson
Do you know your Third Party Liabilities under the Fair Work Act?
Workplace Culture Matters: Issue 28
Individuals and corporations can be held accountable under the Fair Work Act 2009 (Cth) and other legislation for actions which are carried out by third parties if it is considered that they have been involved with the actions. Two examples of this are:
I consider below some of the ways a business or individual can fall into the significant trap of being held liable for a third parties breaches. I also provide some practical tips on how to minimise the risks of being held accountable for accessorily liability.
- businesses being held liable for actions of contractors; and
- managers and in particular human resources professionals being held liable for breaches of Awards and legislation of business.
Contractors breaching labour laws
The Fair Work Act under section 550 prescribes that a person (which includes a corporation) that is “involved in” contravening other specific sections of the Act is taken to have contravened those provisions themselves. A very broad approach is taken to defining “involved in”. If a company has aided, abetted, counselled, procured, induced, or in any way by its acts or omission been involved in a contravention this is enough for it to be found accessorily liable. Further, if a company has conspired in such contraventions it will also be so liable.
Section 550 is particularly applicable in relation to the issue of contractors. If a company enters into an arrangement with a contractor who employs its own employees and that contractor is involved in contraventions of the Fair Work Act, it too would be open to prosecution for those breaches. This is despite the fact that the company engaging the contractor is not considered to be an employer of the wronged individuals employed by the contractor.
Companies need to be wary that they must not turn a blind eye to the arrangements of their contractors with its employees. A clear example of this is seen in a case involving supermarket Coles (Fair Work Ombudsman v Al Hifi  FCA 1166). This matter saw the Fair Work Ombudsmen on behalf of a number of foreign trolley workers pursue the contractor, its sub-contractor and the principal in the arrangement, Coles. It was alleged that there was various serious contraventions of the Fair Work Act including contravening a modern award, not keeping proper employee records and not providing pay slips.
Coles was not pursued by the Fair Work Ombudsmen as the primary contravener, rather it was considered to be “involved in” the alleged contraventions. Significantly, it was alleged that Coles knew that contractor’s estimated labour costs were only $1940 per week for a total of 9 employees. It was also alleged that it knew that there would be no penalty rates, over time or casual loadings paid to any employees. It was therefore alleged that Coles was aware that the wage conditions were such that they would not comply with the relevant award. Despite this knowledge the Fair Work Ombudsmen asserted that Coles did not take any action to ensure that its sub-contractor complied with the minimum wages and conditions. It was further asserted that Coles in fact induced the contractor to contravene the Fair Work Act by refraining or omitting to taking any action despite its knowledge. Ultimately this matter settled out of court. However, it provides a clear example of where a business is not simply able to turn shirk labour laws because it is not the employer at law in order to get cheap services.
Liability of Managers, Directors and HR Professionals
Individuals involved in the management of businesses and in particular the management of staff related matter can and have been held liable as accessories under the Workplace Relations Act 1996 (Cth) for breaches of the Act and relevant awards.
In a series of sham contracting decisions involving Centennial Financial Services the Managing Director and Human Resources Manager were held to involve in certain contraventions of the law by the corporation. The facts of the matter were complex but involved “Corporate Associates” being engaged on a commission only basis by Centennial Financial Services. The arrangement was held to be sham and the Corporate Associates were considered employees with entitlements to salary and leave. The Managing Director and Human Resources Manager were held by the Federal Magistrates Court to be knowingly involved in the contraventions of the Workplace Relations Act by the company. They were required to pay pecuniary penalties as a result of this involvement. In relation to the penalties payable by the Human Resources Manager, the Court held accepted that the Human Resources Manager was overborne by the Managing Director and he was placed under significant pressure. However, the Court said:
“Nevertheless, as human resources manager, he should have been aware of, and at least attempted of give advice on, Centennial’s obligations under the WRA”.
Interestingly, a report last year by Melbourne University’s Centre of Employment and Labour Relations Law, called upon the Fair Work Ombudsman to include HR Managers and in house counsel in claims against enterprises who have breached legislation and Award obligations as HR professionals were often in a position to monitor and control corporate conduct.
Minimising risk of accessorial liability
When businesses are facing economic challenges significant pressure can be applied to reduce costs. There are many ways in which this can be done lawfully. However, when it comes to minimum payments and leave entitlements under the National Employment Standards for employees proscribed under Awards and legislation regulators take a substance over form approach. The ultimate business receiving profits as a result of any underpayment by contactors have and will be pursued by the Fair Work Ombudsman and held accountable in the Courts. Further if a business or individual knows and is involved in the non-payment of these minimum entitlements by another person, they are at great risk of prosecution.
This is a complex area and it is important to be vigilant. Some key measures which a person involved in managing which has employee or contractor or holding a position with human resources responsibilities should take are as follows:
- Checking their contractor’s compliance with labour laws;
- Being aware of minimum wage rates in an industry. If a contractor is offering services to your business at a cost which is lower than minimum wage rates there is likely to be a problem.
- Utilising ongoing auditing processes to ensure that all subcontractors are vetted for compliance on an ongoing basis with labour laws.
- If you have a management or human resources position in a business and believe or suspect minimum entitlements are not being paid, you should investigate and put your concerns in writing.