Insights & News

February 11, 2022

The High Court’s decisions on Tuesday in ZG Operations Australia Pty Ltd v Jamsek[1](Jamsek) and CFMMEU & Anor v Personnel Contracting Pty Ltd[2] (Personnel Contracting) provide a refreshing reset on how to assess whether a person is a contractor or employee.

The decisions provide more certainty to business’ that have genuinely and comprehensively committed the terms of their relationship with a contractor in a written contract. Instead of engaging in a subjective, checklist approach, Courts will now consider the question of employee vs contractor through the prism of normal principles of contractual interpretation, consistent with the High Court’s decision last year in WorkPac Pty Ltd v Rossato[3]. The indicia set out in the multifactorial test will now only be relevant to the extent they are concerned with the rights and duties established by the parties’ contract.

Less about totality

Determining the nature of the relationship has, to date, not been an easy task – despite the fact that there is usually a written contract entered into at the outset of either relationship which purports to make it clear.

This is because, historically, Courts have looked beyond the terms of the written contract, considering the “totality of the relationship” between the parties. Commonly known as the multifactorial test, Courts have considered the totality of the relationship between parties by reference to a range of indicia including the degree of control the worker is under and whether workers operate their own business.

In applying the multifactorial test, Courts have long grappled with the notion of whether a person is truly a contractor in circumstances where the weight accorded to each indicium is wholly in its discretion.

The application of this discretion has meant that, to date, the well-settled multifactorial relationship test applied by Courts has yielded different and sometimes inconsistent assessments of whether a person is a contractor or not.

Take Jamsek as an example.

In this case, two truck drivers provided delivery services to ZG Operations Pty Ltd (and its predecessors) (ZG Operations), initially as employees and subsequently as contractors. On agreeing to “become contractors”, the drivers set up partnerships (with their respective wives). Via their newly formed partnerships, the drivers purchased vehicles from ZG Operations and executed contracts with it for the provision of delivering services. The drivers subsequently made deliveries as requested by ZG Operations. Lawyers for ZG Operations argued that from this point, each driver owned their own business and there was no basis to conclude they were employed.

At first instance, the primary judge found that the truck drivers were contractors for the relevant period that they operated their partnerships, owned their trucks, and contracted their services to ZG Operations. The primary judge reached this view applying the multifactorial test, emphasising the drivers’ provision of vehicles and provision of services via partnership arrangements as significant factors.

On appeal, the Full Bench of the Federal Court of Australia disagreed with the primary judge and unanimously held that, when viewed in totality, the relationship remained one of employment. One factor that weighed heavily with the Full Court was the exercise of superior bargaining power by ZG Operations.

In the High Court, the majority rejected the Full Court’s invocation of the disparity of bargaining power, finding that such considerations cannot alter the bargains that were struck between ZG Operations and the partnerships. The majority pointed to existing remedies within Australian law which deal with injustices arising from the disparity of bargaining power, such as sham or unfair contract provisions. On the basis that no claim had been made challenging the validity of the contracts between the ZG Operations and the partnerships (via sham contracting provisions or otherwise), the majority proceeded to interpret the contracts, finding that the drivers were individual contractors.

The finding that day-to-day instruction or expectations of ZG Operations in relation to the drivers wearing a uniform or displaying a company logo on their trucks (factors that weighed in favour of the Federal Court’s decision in assessing the drivers as employees) did not alter the contractual rights and obligations which characterised the relationship between the parties.

Unsurprisingly, in reaching this conclusion, the majority in Jamsek – Kiefel CJ, Keane J and Edelman J – followed the principles set out by the same majority in Personnel Contracting. Published moments earlier, Personnel Contracting makes it clear that it is erroneous for Courts to apply the multifactorial test by reference to how the parties have conducted themselves over the decades of their relationship. Instead, where the parties have entered into a comprehensive written contract, the various indicia in the multifactorial test only bear on the nature of their relationship to the extent that they are concerned with the rights and duties established by the parties’ contract.

For example, in Personnel Contracting, the majority considered whether the worker was subject to the control of Construct (the trading name of Personnel Contracting, which is a labour-hire company). In interpreting the contract, the majority found that the worker had no right to exercise any control over what work he was to do and how that work was to be carried out. Specifically, the majority referenced a clause in the contract which stated that the worked was obliged to “[c]o-operate in all respects with Construct and the [host company] in the supply of labour to the [host company]”. This duty, along with others, led to the majority concluding that the parties’ description of their relationship as principal and agent in the contract was not determinative.

What does this mean in practice?

The High Court’s ruling simplifies the analysis for determining whether a person is a contractor or employee in circumstances where the character of the relationship between the parties can be determined by the reference to terms of the written agreement.

Is the multifactorial test dead?

No.

As mentioned above, where the rights and duties of the parties are found exclusively within a written contract, the various indicia in the multifactorial test are still relevant. However, the indicia only bear on the nature of the parties’ relationship to the extent that they are concerned with the rights and duties established by the parties’ contract.

Importantly, the conduct of the parties is no longer relevant in applying the multifactorial test. Instead, the conduct of the parties is only relevant as per established contractual principles. For example, the subsequent conduct of the parties may be relevant to ascertain whether the terms of the original contract have been varied.

Do I need to review my independent contractor contracts?

Yes.

As mentioned above, the parties’ description of their relationship as principal and agent in the contract is not determinative. Instead, the terms of the contract when read as a whole must reflect the status of the relationship as principal / independent contractor.

Contract terms which may suggests a relationship of employment include:

• terms that fix the worker’s remuneration;
• terms that state a principal is a worker’s paymaster;
• terms which oblige the worker to perform work as directed by the principal or host; and
• terms which authorise a principal to terminate a worker’s engagement should they fail in any respect to obey directions.

As such, it is important that principals check contractors’ terms and conditions to ensure they could not be interpreted in favour of an employment relationship.

It is also important to review current practices with contractors to ensure that there can be no argument that their current contract is a sham, or its terms have been varied by conduct.

Are there specific implications for labour hire entities?

Yes.

The majority in Personnel Contracting found that “there is nothing in the tripartite nature of a labour-hire arrangement that precludes recognition of [a principal’s] contractual right to control the provision of [the worker’s] labour to its customers, and the significance of the right to the relationship between [the principal] and [the worker]”. In other words, although a host entity may supervise and direct every aspect of a worker’s work, if this subordination is attributable to the terms of the contract between the worker and the principal (i.e. via a term stating that the worker is obliged to perform work as directed by a host), this will suggest that a worker is subject to the control of a principal. This will weigh towards a Court finding that a worker is an employee rather than a contractor.

[1] [2022] HCA 2.

[2] [2022] HCA 1.

[3] [2021] HCA 23.

January 31, 2022

The start of 2022 has felt eerily similar to 2021 with many starting the New Year in self-isolation following the rise of COVID-19 infection due to the Omicron variant. While we anticipate that the next 12 months will be riddled with ongoing COVID-19 response action by employers, we also anticipate that employers will be faced with new challenges and opportunities in a year where industrial relations is likely to become a political hot-potato as we head into the federal election.

We’ve set out some of the key issues that employers will need to stay focused on in 2022.

The primacy of contract for contractors?

Following almost three years of uncertainty caused by the WorkPac saga, 2021 finally provided clarity over the meaning of casual employment. First with the commencement of the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Act 2021 (Amendment Act) in March and then with the delivery of the High Court’s judgment in WorkPac v Rossato [2021] HCA 23 (Rossato) in August. However, along with providing greater clarity, employers have been hit with further compliance obligations in relation to casual employees.

The Amendment Act introduced changes to the Fair Work Act 2009 (Cth) (FW Act) which have required employers to revise their casual employment contracts, review their enterprise agreements to assess any interpretation issues arising from their interaction with the new laws, and introduce processes to ensure compliance with the casual conversion provisions. The changes also required the Fair Work Commission (FWC) to vary the casual terms in 151 modern awards. These variations took effect on 27 September 2021.

In Rossato, the High Court found that primacy was to be accorded to the various contracts between WorkPac and Mr Rossato in characterising the employment relationship as casual.

Our 2022 insight: Although Rossato only determined the primacy of contract relevant to determining whether the employment relationship was one of casual or permanent, there is a question as to the impact (if any) the ruling will have on the High Court in determining the appeals of the two Federal Court decisions in CFMMEU v Personnel Contracting Pty Ltd[1] and Jamsek v ZG Operations Australia Pty Ltd[2] (Jamsek).

The appeals consider the correctness of the Federal Court’s finding that the relationship between the parties in those cases should be construed as one of principal and independent contractor (as opposed to employment). The appeals were heard consecutively on 31 August 2021 and 1 September 2021.

During the hearing of the Jamsek appeal, Justice Gageler raised the question of how the existing “totality of the relationship” test applied in determining whether a worker is an employee or independent contractor squares with Rossato.[3] In the discussion that ensued, Justices Gageler, Gordon and Edelman all indicated that the contract should be front and centre to the inquiry of the Court in determining the relationship between the parties. This suggests that there could be a shift in the established principles which apply to the employee / independent contractor dichotomy (or at least, a shift in the way the “totality of the relationship” test is applied) in the not too distant future. Keep an eye out for our update once judgment in these appeals have been delivered.

Embracing the RAT race

Except where made clear by public health orders (PHO), governments have largely left it up to employers to decide whether they introduce mandatory COVID-19 vaccination for employees (as well as customers and clients). The question has been difficult for employers to navigate given the competing Work, Health and Safety (WHS) obligations, individual/union claim risks and mixed guidance materials published by authorities.

Despite the confusion, many employers decided to implement, or began to implement, mandatory COVID-19 vaccination last year. Employers who have made this decision to mandate vaccines have done so to ensure compliance with WHS obligations and on the basis that the direction is both lawful and reasonable.

At a minimum, any direction that employees be vaccinated against COVID-19 (including by way of booster shot) must be:

• Based on WHS risk considerations;
• Implemented following consultation and the introduction of a COVID-19 vaccination policy;
• Reasonable in terms of the timeframe by which employees must be compliant; and
• Allow for any medical contraindication.

When requesting proof of vaccination status, employers must ensure compliance with relevant privacy laws, including by ensuring that a person’s vaccination status is treated as sensitive health information in accordance with the Privacy Act 1988 (Cth) and the employer’s privacy policy.

If employees have legitimate medical grounds to refuse vaccination directions, employers may, where possible, offer reasonable alternatives for workers falling within this category.

The Omicron variant has also increased the rate of infection across the community and therefore in the workplace significantly. This has resulted in a shift by Federal and State governments from the reliance on PCR tests to rapid antigen tests (RAT). This has resulted in a RAT race like no other as those who are symptomatic scramble to find a RAT.

Our 2022 insight: Employers will continue to face the conundrum of how to respond when an employee (or prospective employee) without legitimate medical grounds fails or refuses to be vaccinated. It is important that decisions made by employers as to disciplinary outcomes are made having regard to legal advice and on a case-by-case basis. There remains a myriad of legal risks associated with responding to an employee who has refused a vaccination mandate including a dispute application, general protections claim or unfair dismissal.

On the flip side, as employers begin to direct employees to return to the workplace (whether in accordance with a hybrid working system or otherwise), there may be instances where employees refuse to attend the workplace for various reasons. It is lawful and reasonable for employers to direct employees to return to their normal working arrangements. If an employee does not comply with such a lawful and reasonable direction, the employer may consider taking disciplinary action against the employee and/or decide that the employee no longer can fulfil the inherent requirements of their role. Either way, advice should be sought prior to taking the action.

Employers also need to review their COVID Safe Plans and WHS risk assessments as these are living documents which need to be updated to reflect the rapid pace in which PHOs are being varied and implemented.

R-E-S-P-E-C-T

In January 2021, Safe Work Australia published national guidance material on preventing workplace sexual harassment (Guidance Material). The Guidance Material advocates for a more proactive role of persons conducting a business or undertaking (such as employers) (PCBUs) in identifying, assessing and eliminating or minimising the risk of workplace sexual harassment.

In June 2021, the Australian Human Rights Commission (AHRC) published its report, ‘Equality across the board: Investing in workplaces that work for everyone’ (AHRC Report). The AHRC Report focused on the actions required of the most senior leadership of the ASX200 boards and executive management in preventing sexual harassment in the workplace.

On 2 September 2021, the Sex Discrimination and Fair Work (Respect at Work) Amendment Act 2021 (Respect@Work Act) passed Parliament.

Our 2022 insight: As more high-profile cases continue to emerge and applicants begin to utilise the new legal avenues available to them in light of last year’s legislative changes, we suspect that sexual harassment in the workplace will remain in the spotlight in 2022. Employers (and PCBUs more broadly) must take proactive steps to prevent and eliminate sexual harassment in the workplace. At a minimum, we recommend that PCBU’s:

• Require that executive teams review and revise current Workplace Behaviour Policies to ensure that they reflect the new legislative changes and focus on prevention of sexual harassment in the workplace;
• Ensure the Board of directors and senior executives implement governance measures to prevent and eliminate sexual harassment in the workplace. The Australian Institute of Company Directors has pointed out that sexual harassment is now recognised (and should be treated as) an important governance issue; and
• Deliver sexual harassment training to all employees and managers that not only focuses on explaining the legal terms but trains employees on how to actively prevent sexual harassment including by using active bystander techniques.

Increases to minimums

Despite the continuing economic uncertainty due to COVID-19, 2021 saw minimum wages under modern awards increase.

In June 2021, following the Annual Wage Review 2021, the FWC announced that it would be increasing the national minimum wage and all award wages by 2.5%. The increase to minimum award wages occurred in three stages, with the last increases coming into effect from 1 November 2021 (for those in aviation, tourism, fitness and a few retail sectors).

Our 2022 insight: although the increase only applies to employees who are paid the national minimum wage or minimum award wages, the increase will have broader ramifications for those employers who employ employees above the minimum wage. The 2.5% increase will become a benchmark for wages growth in enterprise bargaining and individual contract negotiations in the first half of 2022.

It’s all super!

In July 2021, the superannuation rate increased by 0.5% to 10%. The rate is legislated to continue to increase by 0.5% annually until it reaches 12% in 2025.

Our 2022 insight: it is important that employers check employment terms and conditions in place to ensure that there is a basis for reducing the income component of employees’ salaries by 0.5% and redistributing this to their superannuation funds (e.g. through an “all-inclusive salary” or “absorption” clause in the employees’ employment contracts). If not, we recommend that employers develop a plan to manage the introduction of the annual increases through contractual or administrative changes such as building the increase into planned pay rises. It is also important that employers consider any terms in an applicable industrial instrument that may affect its obligations regarding superannuation contributions.

Is compliance still key?

The Fair Work Ombudsman’s commencement of Court proceedings against major employers last year indicates that investigating large corporate underpayments will remain a priority for the regulator in 2022.

Our 2022 insight: check out our recent article on wage compliance and the issues employers need to keep in mind in 2022 here.

Election year

2022 is election year and we all know what that means for industrial relations – change.

Both major parties have hinted at what will form part of their industrial relations agenda if they were to form Federal Government in 2022 and we’ll provide further updates throughout the first quarter as we head into the Federal election.

Our 2022 insight: Last June, the Coalition signalled that it will push for the changes to the lifespan of greenfields agreements it removed from its diminished IR Omnibus Bill (which ultimately passed in the form of the Amendment Act). The changes to greenfields agreement provisions would see the maximum life of a greenfields agreement for a “major project” being extended from four to eight years.

If re-elected, it is likely that the Coalition would also press for the other residual parts of the IR Omnibus Bill that didn’t make the final cut, which include:

• More discretion in the BOOT assessment in approving enterprise agreements;
• Sunsetting of zombie agreements;
• Simplified additional hours for part time employees; and
• Flexible work directions.

If the Morrison Government’s religious discrimination bill does not get voted up (in one form or another) before the next election, this will no doubt also form part of its agenda if elected for another term.

In 2021, the Australian Labor Party (ALP) released its “Secure Jobs Plan” which focuses on a number of key areas, including:

• Job security, including by making job security an object of the FW Act, extending the power of the FWC to make orders for the minimum standards which apply to “employee-like” forms of work (such as gig economy work) and amending the FW Act to limit the number of consecutive fixed-term contracts an employer can offer so that they cannot exceed a period of 24 months (with exceptions in limited circumstances);
• Pay, including by introducing a portable entitlement scheme for workers in insecure work and introducing laws such that workers employed through labour hire companies receive no less minimum pay than workers employed directly;
• Casual employment, including by watering down the current definition of casual employment in the FW Act such that the focus on is on the absence of a firm advance commitment as to the duration of the employee’s employment only;
• Criminalising wage theft, however any law will not undermine existing state and territory wage theft laws (such as those in Queensland and Victoria); and
• Government, including by conducting an audit of employment within the Australian Public Service with a view to promoting more secure employment where temporary forms of work, such as outsourcing, short term contracts or “offshoring” are being used and ensuring that the Federal Government prioritises bids and tenders from companies and organisations that provide secure work for employees when purchasing or seeking goods and services.

The Australian Council of Trade Unions (ACTU) has signed off on a 33-day election strategy in support of the ALP’s Secure Jobs campaign. The strategy emphasises the importance of workplace activity and features the training of organisers and delegates and hundreds of workplace visits both before, and during, the 33-day union campaign.

Our 2022 insight: 2022 is set to be another jam-packed year for industrial relations and safety law. We look forward to keeping you across the key issues over the course of the year. Please reach out to our team if you have any questions.

[1] [2020] FCAFC 122.

[2] [2020] FCAFC 119.

[3] ZG Operations Australia Pty Ltd & Anor v Jamsek & Ors [2021] HCATrans 139.

December 9, 2021

As Australia moves from a position of eliminating COVID-19 to living with COVID-19, governments across the country have implemented vaccination mandates as one of the levers to protect the community from COVID-19 transmission and to minimise the impact of infections that do arise.

These vaccination mandates, and the manner by which they have been implemented and supplemented by employer vaccination policies, have by no means been universally received, and much has been raised in challenge of them.

These challenges are largely resolved on technical points, adding to confusion for organisations attempting to navigate the noise.  This noise has been amplified by the recent decision of a 5-member Full Bench of the Fair Work Commission in the matter of CFMMEU & Anor v Mt Arthur Coal Pty Ltd.

Does the decision in Mt Arthur Coal mean the mandatory vaccination policies are unlawful?

Put simply, no.

In early October, Mt Arthur Coal introduced a policy requirement that all of its workers must be vaccinated against COVID-19 as a condition of entry to the mine.  Workers had until 9 November 2021 to provide evidence that they had received at least one dose of a COVID-19 vaccine.  Fifty workers who did not provide such evidence were stood down.  The Construction, Forestry, Maritime, Mining and Energy Union challenged the mandatory vaccination policy by lodging a dispute under the applicable enterprise agreement.

The question for the Full Bench was whether the mandatory vaccination policy was a lawful and reasonable direction.  The Full Bench determined that it was not in this case, for the reason that Mt Arthur Coal was found to have failed to consult with staff as required under the terms of the applicable enterprise agreement, and in accordance with general consultation obligations operative under workplace health and safety laws.

Notably, the Commission stated that, but for the failure to adequately consult, there were a range of factors in favour of the implementation of a company mandatory vaccination policy; which included:

1. It was directed at ensuring the health and safety of workers of the workplace, had a logical and understandable basis; and was a reasonably proportionate response to the risk created by COVID-19.
2. It was developed having regard to the circumstances at the workplace, including the fact (in that case) that workers could not work from home and came into contact with other workers whilst at work.
3. The timing for its commencement was determined by reference to circumstances pertaining to the local area at the relevant time.
4. It was only implemented after the employer spent a considerable amount of time encouraging vaccination.

Flowing from these observations, it may be taken that employer mandatory vaccination policies will be lawful and enforceable where they are:

1. Tailored to the risk factors and circumstances that operate in the particular workplace in which they will apply; and
2. Critically, subject to consultation before implementation.

In the context of introducing or updating a mandatory vaccination policy, consultation requires a business to provide its workforce with a reasonable opportunity to persuade the decision-maker in relation to the decision to introduce such a policy.  It does not require the workforce to agree to the policy or give the workforce power of veto.

Where these requirements are met, and the terms and implementation of a mandatory vaccination policy, or updated mandatory vaccination policy are lawful and reasonable, they will be legally enforceable.

Can employers collect vaccination information?

A critical requirement of an employer vaccination policy, as well as of public health orders creating mandatory vaccination obligations, is a requirement for affected employees to provide evidence of their vaccination status.

Information about an employee’s vaccination status is defined as ‘sensitive information’ for the purposes of the Privacy Act 1988 (Cth) (Privacy Act) and is accordingly afforded a higher degree of protection.

This higher protection means that an employer can collect evidence of an employee’s vaccination status where the collection is with the employee’s consent, and where the collection is reasonably necessary for one or more of the employer’s functions or activities, such as to ensure the safe performance of work.

The voluntary provision by employees of their vaccination status, provided that employees are notified of the purpose for which the information is collected and the ways in which the information may be used or disclosed, will be regarded as a collection with consent.

That consequences might flow from a refusal to provide consent for the collection of vaccination information will not, by itself, impact upon whether an employee has had a genuine opportunity to consent, or not.

Should employers hold vaccination information?

In another recent headline case, Virgin Australia Airlines undertook to destroy vaccination information that it had collected from its workforce following the commencement of proceedings by the Australian Licensed Aircraft Engineers Association alleging that the collection of individual healthcare identifiers (IHI) from Virgin Australia Airline employees breached the Privacy Act and could be misused by Virgin Airline employees.

In resolving the proceedings, Virgin Australia Airlines undertook that it would delete all proof of COVID-19 vaccination documents provided by employees that they hold and have verified, which was codified in an Order made by the Court.

So, does this mean that the collection of vaccination information is unlawful, and should employers proceed to destroy all vaccination information provided by employees?  No.

The undertaking given by Virgin Australia Airlines was made subject to the operation of requirements imposed by law, with laws varying from State to State and Territory on the extent to which employers are required to collect, record and hold particular vaccination information.

It is also important to be aware that the destruction of the vaccination information was at the undertaking of Virgin Australia Airlines, and not as a result of any decision made by the Court that the collection and holding of vaccination information including IHIs was unlawful.

Organisations would, however, be wise to only view, collect, record and/or hold the least amount of information possible.  A person’s COVID digital certificate, accessible via their Medicare account, does not include their IHI, however their immunisation certificate does. The handling and disclosure of IHIs is regulated in its own right under the Healthcare Identifiers Act 2010 (Cth) (HI Act). This is reflective of the even higher level of protection that is afforded to this information.

Section 26(1)(d) of the HI Act states that the use or disclosure by a person of an IHI, is prohibited unless a relevant exception applies. Where there is no such exemption, a person can be exposed to a criminal penalty – which could lead to fines or even a jail term of up to two years – and a civil penalty where the person uses or discloses information in circumstances that contravene the HI Act, and the person knows or is reckless as to those circumstances.

Given the particular sensitivity of IHIs businesses can and should redact this information at the time they collect a person’s vaccination information, to the extent that this is possible, and where this is not practicable, ensure that information containing a person’s IHI is stored securely.  Redacting may be as simple as asking a person to cover their IHI with a finger when snapping a photo, or it could otherwise be a request for an employee to crop their immunisation certificate to remove their IHI before sending to your business.

What should employers be doing now?

For the majority of staff who are vaccinated, the operation of public health orders and organisation policies requiring vaccination are relatively uncontroversial.  However, to mitigate against claims and challenges from the vocal few, it is important for organisations to turn their minds to the following key considerations:

• The requirement to view, collect, record and / or hold vaccination information varies from State to State and Territory. Ensure that your organisation is viewing, collecting, recording and / or holding vaccination information only as absolutely required;
• If a worker asks to have their IHI removed from any copy of the vaccination information securely held by your organisation, reasonable steps should be taken to do so, and substitute vaccination evidence provided where legally required to be held;
• If your organisation proposes to introduce a new or updated mandatory vaccination policy, ensure that there is consultation prior to implementation and enforcement;
• Don’t forget your COVIDSafe Plan – your organisation’s COVIDSafe Plan should be reviewed and updated to operate effectively alongside any mandatory vaccination public health order or policy, including by setting out any additional safety and hygiene measures for employees holding valid exemptions from vaccination requirements.

In all cases, get advice when situations of uncertainty arise or where your organisation is receiving pushback on its policy.

November 25, 2021

As business returns to a degree of normalcy and COVID recedes as the issue, wage compliance, a hot-button issue in the latter half of 2019, is likely to return to the fore.

Back then, it had become a critical issue for management teams and boards to ensure that they were auditing and assessing their wage and minimum entitlement obligations correctly. A range of prominent businesses and large corporates had been identified as having underpaid workers – in the main not because of any deliberate desire to do the wrong thing but because of inadvertence, a lack of good process or a genuine misunderstanding about the complex system of workplace regulation. Rightfully, no business wanted to be the next front-page story about wage underpayment, especially as the term “wage theft” became a political and public relations lightning rod that threatened brands and reputations – not to mention the potential for significant financial penalties.

Then the COVID crisis arrived, and the focus shifted rapidly. Not just for businesses but also for the Fair Work Ombudsman (FWO), the regulator who has within its remit various compliance activities, including bringing Court proceedings to ensure employers comply with workplace laws. The FWO identified that although it would continue to enforce the law, supporting businesses through the pandemic was its top priority. There was also a limitation on the FWO’s investigative capability because of COVID-induced health and safety risks.

But the issue never went away for the FWO. Recently, the Fair Work Ombudsman, Sandra Parker, identified that the number of large corporations under investigation for underpayments had risen to 70, and additional staff were being assigned to this task. So, with this in mind, employers need to refocus their attention on wage compliance.

The conundrum of compliance

As my colleague Steven Amendola has written in the Australian, if you’d ever harboured dreams of opening your own inner city cocktail bar, “good luck” figuring out under what Award you should pay staff, to say nothing of navigating the pages and pages of terms and conditions (assuming you picked the right Award). Our system of regulation is unbelievably complex and the intersection and overlap of the Award system is but one challenge.

Our system of award regulation was derived from a process in which I was heavily involved from 2008-09. Called “Award Modernisation”, the task was to reduce more than 1500 pre-modern awards down to a more manageable number – we arrived at 121. It was a herculean undertaking, and while it successfully reduced some of the administrative complexity created by the vast number of pre-modernised awards, it created its own new and “improved” complexity by establishing a modern award system that covered employers and employees based on descriptions of industries and occupations. It accepted that this new system would create overlap between awards – and then sought to fashion a solution by requiring employers to assess the “most appropriate” award for an individual employee having regard to the nature of their work and where it was performed.

The result? The determination of Award coverage was not just a problem that confounded smaller employers, but it also has at various times caused complexity for large and well-resourced corporate employers.

Add to that the reality that the Fair Work Commission, the body responsible for maintaining and amending the modern Award system, has been reviewing the system since 2014. This has seen many variations to Awards, including the establishment of detailed reconciliation and drafting obligations for annual salary arrangements in some Awards, and the expansion of the coverage of the “Miscellaneous Award”, an Award that requires an employer to consider and know whether the nature or seniority of the employee’s role, or the work they perform has traditionally been covered by an Award in order to determine its application to any employees.

Today, the window is rapidly closing for employers on this issue. The FWO’s 2020-21 annual report stated that it had issued more than 2000 compliance notices in the past 12 months, up by 113% from 2019-20. [Compliance notices are the administrative mechanism to correct wage and minimum entitlement compliance breaches where there is a reasonable belief of contravention]. The FWO recently started Court action against several major corporations for contraventions where these businesses had voluntarily disclosed. In addition, the criminalisation of deliberate or dishonest underpayment of employees are now features of Victorian and Queensland State laws.

Good Luck or Good Planning?

Ensuring compliance is not just a matter of having the right processes in place to ensure that payroll systems and record-keeping obligations are being met – although these are two critical steps. It is also about having the right guide to shepherd you through the sometimes winding and precarious path of wage compliance to ensure there are no missteps. It is critical to get the right legal advice from experts in the field.

A further option some employers are considering are applications to vary those same Awards that are causing them so much grief, or, alternatively, create new Awards that better meet their needs. The current application for a new Award for the on-demand delivery industry that has been sought by Menulog is a case in point. Additionally, there is the option of exploring whether creative solutions such as exemption rates for some modern awards (which were features of some Awards before 2010) and which would absolve an employer from needing to comply with various provisions within an Award where an employee was paid above a certain salary range, could once again be in-vogue.

Understandably, COVID sidelined many traditional employer-employee issues. But that situation is fast coming to an end, with all the evidence suggesting wage compliance will be back in the industrial relations agenda – and in the news – in 2022. Employers need to be prepared.

Michael Mead
Partner
+61 2 9169 8428
[email protected]

October 7, 2021