Can your business can be liable for the conduct of others, including labour hire businesses?*
Imagine you enter negotiations with a labour hire provider to supply staff to your company. You receive a quote and the hourly rate is so competitive, you wonder how the provider could afford to pay its employees at least the award wage rate.
Despite your concern, you sign a contract and start engaging the services of the labour hire provider. Six months later, you learn that one of labour hire provider’s employees whp has been supplied to you has made a complaint of underpayment to the Fair Work Ombudsman (FWO).
Following an investigation by the FWO, it turns out that the employee has been substantially underpaid in breach of the Fair Work Act 2009 (Cth) (FW Act).
Should you be worried that the FWO could prosecute you and your business for being ‘involved in’ the contravention of the FW Act by the labour hire provider?
The answer is yes and amendments to the FW Act to increase fines for ‘serious contraventions’ of the FW Act could mean it is time to rethink who your labour hire provider is.
What is accessorial liability?
It is well known that companies and individuals can be prosecuted and fined if they contravene the FW Act, for example, by underpaying employees.
But did you know that companies and individuals can also be prosecuted and fined because of their involvement in another person’s contravention?
This kind of liability – ie, liability for the conduct of others – is commonly called ‘accessorial liability’ and for some time, the FWO has been keenly pursuing companies and even individuals for their involvement in contraventions by others.
This approach appears certain to continue in light of recent changes to the FW Act to enhance the FWO’s powers and to dramatically increase the maximum financial penalty that applies for ‘serious contraventions’ of the FW Act from $63,000 to $630,000 for companies and from $12,600 to $63,000 for individuals.
So how does accessorial liability work?
What you need to know about accessorial liability?
Under the FW Act, you or your business could be prosecuted for being ‘involved in’ a contravention of the FW Act by another company or person. A common example of a contravention is underpayment of wages.
Under section 550(2) of the FW Act, a company or a person will be ‘involved in’ a contravention if it:
(a) aids, abets, counsels or procures the contravention;
(b) induces the contravention whether by promises or threats;
(c) is in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to the contravention; or
(d) conspires with others to affect the contravention.
If a company or person is ‘involved in’ a contravention, then they are taken to have contravened FW Act themselves.
The FWO relies on this provision to prosecute individuals such as directors, executives, human resource advisors and recruiters for breaches of the FW Act by the companies they represent.
In addition, the FWO has more recently started to prosecute companies and individuals who are strangers to the employment relationship, on the basis they were ‘involved in’ another person’s contravention.
This could include being involved in a contravention by a labour hire provider you engage – for example, if you have direct knowledge that they are underpaying their employees or you turn a blind eye to it.
Until recently, most significant contraventions of the FW Act attracted a maximum penalty of $63,000 for companies and $12,600 for individuals. However, recent legislative changes has dramatically increased these fines.
Recent changes to the FW Act – increased penalties
On 17 September 2017, substantial amendments to the FW Act designed to protect workers commenced operation.
One of the changes included a significant increase in the maximum fines that can apply for breaching industrial laws.
The amendments created a new category of contravention of the FW Act called a ‘serious contravention’, which attracts a maximum penalty of $630,000 for companies (which is a tenfold increase) and $63,000 for individuals. A ‘serious contravention’ is essentially one that involves knowing and systematic conduct.
These increased fines also apply to companies and individuals who are involved in another person’s breach.
Accessorial liability and labour hire providers – what you need to do?
The FWO’s focus on the prosecution of accessories, along with its increased powers and tougher penalties, mean that companies (whether they directly employ staff or not) need to understand their obligations under the FW Act.
In the labour hire context, companies should only engage with reputable labour hire providers to minimise the risk of being held liable for a provider’s unlawful practices.
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* This article is prepared for information purposes only. While care has been taken in preparing it, the article is not legal advice. Readers should obtain their own legal advice about the issues raised in this article.
**Easy Payroll Global is a provider of specialist workforce solutions which prides itself on compliance with workplace laws.