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14 Sep 2017

A bridge too far: The Vulnerable Workers Bill eroding the presumption of innocence for more than just "dodgy employers"?

By Christy Miller, Jessica Tinsley

Until the exact scope of section 557C of the Fair Work Act is clarified (either by Parliament or the Fair Work Commission), employers must remain vigilant of their extensive record-keeping obligations.

Employers who systematically fail to meet their workplace obligations face increased penalties and a Fair Work Ombudsman (the FWO) armed with new coercive powers with the passing of the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 through both Houses of Parliament last week.

The Bill was introduced to crack down on the exploitation of vulnerable workers after a string of high-profile underpayment of wages cases involving (amongst others) franchise chains 7-11, Caltex and Dominos.

While the FWO's gaze, and new coercive powers, is likely focused on those employers who systematically and flagrantly breach their workplace obligations, all employers should be wary of these amendments as they have the potential to impact otherwise responsible employment practices.

All employers must be aware of:

  • changes to the accessorial liability laws that mean that holding companies and franchisors will now be liable for contraventions committed by their franchisees/ subsidiaries (even in circumstances where they had no knowledge, and no reasonable way of knowing, of the contravention); and
  • a new law that imposes on employers the burden of disproving allegations of non-compliance made by FWO inspectors and/or employees in circumstances where the employer has not kept proper employee records and payslips.

The new law imposing liability on holding companies and franchisors for contraventions committed by their subsidiaries/ franchisees have resulted from significant and well known breaches, set out above and are examined separately. The reversal of the onus of proof for employers in circumstances where they have not kept proper employment records was introduced as a last-minute amendment and its consequences have not, as yet, been considered in depth.

The wording of the provision is not sufficiently clear to give an indication as to the likely scope of its application and, if interpreted at its broadest, may be a serious roadblock for employers defending legal action taken for alleged unpaid wages and contraventions of the terms of, for example, modern awards, enterprise agreements, the National Employment Standards (the NES) and workplace determinations.

Presumption where records not provided

The new section 557C of the Fair Work Act 2009 (Cth) provides that in proceedings relating to a contravention by an employer of certain specified provisions, if an applicant makes an allegation in relation to a matter and an employer was required, but failed, to:

  • make and keep a record (in the specified form);
  • make a record available for inspection; and/or
  • keep and give a pay slip,

in relation to the matter, then the employer has the burden of disproving the allegation.

Such allegations must be raised during proceedings related to alleged contraventions of the following civil remedy provisions in the Fair Work Act:

  • section 44(1) ‒ the NES;
  • section 45 ‒ modern awards;
  • section 50 ‒ enterprise agreements;
  • section 280 ‒ workplace determinations;
  • section 293 ‒ national minimum wage orders;
  • section 305 ‒ equal remuneration orders;
  • section 323(1) ‒ methods and frequency of payment;
  • section 323(3) ‒ methods of payment specified in modern awards or enterprise agreements;
  • section 325(1) ‒ unreasonable requirements to spend or pay amounts; and
  • any other civil remedy provisions prescribed by the regulations,

(collectively referred to as "the Specified Provisions").

Allegations may be raised by employees and/or FWO inspectors.

What was section 557C meant to do?

The amendment was introduced by the Labor Party, to reverse the onus of proof in claims for unpaid wages where the employer has not been able to produce wage slips or employment records.

Labor's employment spokesman, Brendan O'Connor, described the prescribed operation and purpose of section 557C of the Fair Work Act as:

"if an employer does not make, keep or provide payslips, and the employee makes a claim that they have been underpaid, it is the employer who has to prove that they have paid the employee correctly.This removes the incentive for dodgy employers not to provide payslips."

The change has been supported by the FWO who has, in recent times, cited the destruction of employee records / payslips by "dodgy employers" as a major impediment to successfully investigating potential non-compliance of the Fair Work Act.

While it is clear that the intended purpose of the amendment is to reverse the onus of proof in unpaid wages claims, the wording of section 557C of the Fair Work Act does not limit its application to unpaid wages cases. If an applicant raises an allegation in relation to "a matter" relevant to the proceedings (being proceedings related to the Specified Provisions) and the employer was required to keep a record "in relation to" that "matter", the reverse onus will apply.

A "matter"?

Employers will be aware that the NES and other instruments listed in the Specified Provisions, such as modern awards, enterprise agreements and workplace determinations, place obligations on employers to keep records beyond payslips, including in relation to:

  • flexibility arrangements;
  • employment categories;
  • hours of work;
  • leave; and
  • termination/ redundancy.

A "matter" under section 557C of the Fair Work Act could involve allegations in relation to any of these employer obligations quite unrelated to wages.

The burden of proof will be reversed onto the employer in circumstances where they were obliged to keep a record (in the prescribed form) in relation to that matter and have failed to do so.

The impact of those changes means employers should be aware that they are required to keep all sorts of employment records beyond wages and payslips.

What could section 557C do?

In light of the potential broad scope of "matters" and the extensive record-keeping obligations placed on employers, we see a potential for the burden of proof being placed on employers in proceedings unrelated, or not wholly related to, unpaid wages claims.

For example:

  • employers who do not keep proper termination records may face a reversed onus of proof for breaches of the NES, modern awards and enterprise agreements relating to termination/ redundancy practices;
  • employers who fail to keep records of any agreed to individual flexibility arrangements may face a reversed onus of proof for a breach of a related provision of enterprise agreements and modern awards; and
  • employers who do not keep proper employee records may need to prove that employees have been correctly categorised under any relevant modern award and/or enterprise agreement.

This list is not exhaustive and only gives employers a taste of the potential scope of the changes.

Failure due to exceptional circumstances

Section 557C of the Fair Work Act does however provide a defence if the failure to keep the records was "due to exceptional circumstances beyond the employer's control". While this defence was introduced at the behest of the Nick Xenophon Team to "protect small business", it is unclear how the defence will operate in practice.

Firstly, it is unclear what is meant by "exceptional circumstances" and, secondly, whether such circumstances would even assist small business employers who are unaware of their obligations under the Fair Work Act and Regulations because simply being unaware is in any event unlikely to be considered an exceptional circumstance.

What is clear is that employers will still bear the burden of proving why they cannot comply with their record-keeping and payslip obligations and that this reason is an "exceptional circumstance".

What should employers be doing?

Additional cost and time during proceedings related to the Specified Provisions may be an unavoidable consequence of these latest amendments to the Fair Work Act if employers fail to keep proper records and payslips.

Until the exact scope of section 557C of the Fair Work Act is clarified (either by Parliament or the Fair Work Commission), employers must remain vigilant of their extensive record-keeping obligations. These record-keeping obligations relate not only to what record should be kept, but extends to the precise form and legibility/condition of these records.

All employers should seek to immediately refresh on:

  • what employment records should be kept;
  • the precise form that these records should take;
  • the rights of employees and FWO inspectors to access these records; and
  • how long these records should be kept.

By doing so, employers may be able to save themselves the significant time and cost associated with proving their compliance when allegations are raised regarding their workplace obligations.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.