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16 March 2018 Facing an Investigation by the Fair Work Ombudsman – What is at stake

By Richard Ottley, Partner

It is not uncommon for employers to face investigation by the Fair Work Ombudsman ("FWO") where for example, a disgruntled employee has complained to the FWO about a workplace issue such as a failure to pay adequate wages or to meet award requirements.

Experience suggests that the reaction of employers to the FWO's involvement ranges from nonchalant and dismissive, to filled with trepidation and fear.  Often the employer's reaction is informed by how seriously they view their obligations.
This article looks at accessorial liability, the powers of the Fair Work Ombudsman and the sorts of factors which may determine how a workplace investigation proceeds.  It also looks at how the response of the employer to an investigation may impact on the eventual outcome.

Accessorial Liability

In 2017 the FWO for the first time, used accessorial liability laws to obtain penalties against a professional services firm which was implicated in helping one of its clients to exploit a vulnerable worker.  The accounting firm Ezy Accounting was ultimately penalised $53,880 after the Federal Circuit Court determined that it had been involved in various contraventions of the Act by the employer. These included a failure by the employer to pay: the minimum hourly rate, casual loading, other loadings, public holiday penalty rates, special clothing allowance and also omissions to include prescribed information on payslips. 

In a decision handed down in November 2017 the Federal Court used accessorial liability laws to award a fine of some $21,760 against the HR manager of a New Shanghai restaurant in New South Wales for her role in facilitating widespread non-compliance of award requirements including failure to pay appropriate award rates.  Her submissions that she was following directions given by her boss were not sympathetically received by the presiding Judge, Justice Bromwich, who found that the HR manager had acted in her own interests "and knowingly facilitating the exploitation of workers" and that "there is nothing wrong with sending the message that an employee should indeed resign if that is the only alternative to continuing to participate knowingly in illegal activity".

Powers of the Fair Work Ombudsman to investigate

Fair Work Inspectors may enter premises where they reasonably believe that the Fair Work Act applies to the workplace in question and where records of documents that relate to compliance (or non-compliance) are to be found.  There are requirements for the Fair Work Inspector to identify themselves by production of their identity card.  They can ask anyone to provide an interview (with their consent) and seek access to documents or records to be provided immediately or within a specified timeframe.  Where they believe a contravention has taken place they can require a person to provide their name and address and relevant evidence in support such as a driver's licence. 

In the course of investigation a Fair Work Inspector can issue a Notice to Produce Records or Documents which requires a person to provide such documents within a specified period (usually 14 days).  It is a contravention of the Fair Work Act not to comply with such a notice without reasonable excuse.  That the documents might incriminate a person is not a reasonable excuse for non-production!

Intentionally hindering or obstructing a Fair Work Inspector can attract penalties under the Fair Work Act subject to certain qualifications such as reasonable excuse including that the Inspector refused to comply with the requirement to show their identity card. Providing false or misleading information in response to requests for documents from a Fair Work Inspector is unwise and can attract high penalties.

Options the Fair Work Ombudsman has when they identify a contravention

A number of options are available to the FWO including:

  • Issue of a Compliance Notice

  • Issue of an Infringement Notice

  • The giving of an enforceable undertaking by the wrongdoer

  • Commencement of litigation

  • Issuing of a Letter of Caution

  • Referral to small claims procedures

  • Referral to dispute resolution mechanisms such as mediation

  • No further action

A Compliance Notice is issued by a Fair Work Inspector.  It requires the employer to fix the breach of an Australian workplace law.  The Notice explains what the employer needs to do to fix the breach, the time within which to fix it (generally 14 days) and what happens if they do not comply with the Notice.  If the Notice is not complied with the FWO can take the employer to court and they can be fined. 

An Infringement Notice is similar to an on the spot fine.  It can be issued by a Fair Work Inspector to an employer who doesn’t comply with its record keeping and payslip obligations.  Infringement Notices can be up to $1,260 for a breach by an individual and up to $6,300 for a breach by a corporation.  Infringement Notices must be paid within 28 days.  Higher penalties may apply if an employer chooses not to pay the fine. If the fine is paid on time it is not taken to be an admission of guilt and no further proceeding can be taken for the alleged contravention.   

An enforceable undertaking is a written agreement whereby the employer undertakes voluntarily to fix the issues identified by the FWO (e.g. remedying an underpayment, apologising etc.).  It also may involve a commitment by the employer to future compliance measures such as regular internal audits and training and future reporting to the FWO.  Enforceable undertakings if contravened can lead to the Fair Work Ombudsman seeking court orders including orders for compensation and any other order the court considers appropriate (ref s. 715 of the Act).  Enforceable undertakings are often published on the FWO's website. 

Factors that influence whether the FWO chooses to commence litigation

Firstly there must be sufficient evidence to prosecute the case. Secondly it must be evident from the facts of the case and all surrounding circumstances that it is in the public interest to proceed by way of litigation.  Realistically, the FWO does not have the budget or the time to prosecute every matter.  Generally speaking the more serious the "civil remedy provision" which appears to have been contravened, the more likely it is that this will satisfy the public interest test. 
Public interest factors include:

  1. The seriousness or otherwise of the alleged contravention. Contraventions involving underpayments of $5,000 or more in total are not generally speaking thought to be trivial.  However contraventions involving less than $5,000 in total may be considered sufficiently serious where for example there is underpayments of vulnerable workers or the employer is a repeat wrongdoer.  A failure to comply with a Compliance Notice is another serious matter even if the quantum is less than $5,000;

  2. The actual or potential consequences of the alleged contravention;

  3. Prevalence within the community of the alleged contravention;

  4. Mitigating or aggravating circumstances.  Where there is no evidence that the employer acted deliberately or recklessly in underpaying its employees this will be a mitigating circumstance.  Also where an employer sought advice concerning their obligations from the FWO or a relevant professional and acted upon that advice, once again this will be a mitigating factor.  Co-operation with the FWO to make admissions of contravention, and working to rectify the consequences and ensuring systems are in place to avoid future contraventions will also be relevant to mitigation. 

Other relevant factors include characteristics of the alleged wrongdoer which may for example include:-

  1. The relevant compliance history of the wrongdoer (including their response to previous enforcement and prevention activities undertaken by the FWO);

  2. The alleged wrongdoer's attitude including any proactive measures they might have taken to ensure compliance;

  3. There may be individual characteristics which will be relevant such as age, intelligence, mental health and infirmity;

  4. Also the size of the alleged wrongdoer's business may play a part including the extent of access to human resources expertise. 

  5. Consideration may also be given to whether the business will be able to continue to trade if proceedings are commenced.

  6. The necessity to maintain public confidence in the administration of commonwealth laws.

More detail can be found about the Fair Work Ombudsman's approach to these matters in their "FWO Litigation Policy – GN1"

Increased penalties

The seriousness with which the Government views compliance with workplace laws is reflected in recent changes to the Fair Work Act which were introduced as part of the Government's response to incidents of systemic underpayment including the 7-Eleven underpayment scandal.  The changes were introduced through the "Fair Work Amendment (Protecting Vulnerable Workers) Act 2017".

The changes essentially increase the maximum civil penalties for certain "serious contraventions" so that for a company it is $630,000 per contravention and $126,000 for an individual.  A serious contravention occurs when a court finds that a person knowingly contravened the relevant provision of the Act and that conduct was part of a systemic pattern of conduct relating to one or more persons (s. 557A and s. 557B of the Act).

A person (the involved person) who is involved in a contravention of a civil remedy provision by another person (the principal) commits a serious contravention of the provision if the principal's contravention was a serious contravention and the involved person knew that the principal's contravention was a serious contravention.  This once again highlights the need for professional advisors and HR staff of a relevant employer to be proactive, and if necessary take appropriate action in the event they discover that the employer is engaged in a contravention of the Act.   

Lessons for employers

Employers simply cannot afford to ignore the potentially large penalties that may be imposed in the event of non-compliance with their obligations under the Fair Work Act.  Knowingly engaging in systemic contravention of the Act represents a significant risk to the business.  Employers therefore must take appropriate steps to ensure both compliance and monitoring of their obligations and where appropriate obtain suitable advice.

The Fair Work Ombudsman has demonstrated it is prepared to pursue persons other than employers where they assist in a contravention.  As noted above, they will pursue an organisation knowingly involved in a contravention or individuals including not only directors but also HR personnel of the employer. 

The Federal Court has indicated it will not be sympathetic to a response by an employee that it was following directions where the employee knowingly assisted in the contravention.  It therefore may be the case that individual employees whose warnings about non-compliance with the Act go unheeded by their employer, may be in the invidious position of having to choose whether to resign from their job or run the risk of exposure to significant penalties under the accessorial liability provisions of the Act. 
It is important for employers to recognise the breadth of options available to the FWO when it investigates, and the factors which the FWO will take into account in determining whether or not to engage in litigation or otherwise resolve the matter.  Whilst some are set above, it does no harm to emphasise that the attitude of the employer and how it responds to workplace investigation is likely to play a significant role in determining the future outcome of the investigation.  Acknowledgement of non-compliance where appropriate, and a willingness to rectify previous issues and ensure future compliance will go a long way towards mitigating the consequences for the employer. 

The above also underscores the importance of seeking good legal advice at an early time.

Richard Ottley, Partner  |  Phone: +61 2 9233 5544  |  Email: rbo@swaab.com.au

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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