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Labor Government would crack down on exploitative employers

To commence their 2016 campaign for election, the Federal Labor Government have released a ‘plan’ for a suite of reforms targeting ‘unscrupulous employers’ and in particular the underpayment of workers.

This ‘plan’ follows a number of 2015 cases where workers engaged by large organisations were allegedly underpaid their entitlements.  Labor’s plan notes that these cases, involving entities such as Myer, 7-Eleven, Pizza Hut and Baiada ranged from underpayment cases, sham contracting offences and intimidation of workers.  It was also noted in the document that in 2014-15, the Fair Work Ombudsman assisted some 11,000 workers recover $22.3 million in back pay.

The Labor plan noted the FWO’s view that:

“…unlawful employment practices impose significant costs on individuals and society.  These behaviours create barriers to workforce participation, weaken the integrity of the workplace relations system, distort the labour market and undermine the principles of fair competition.”

With these issues in mind, the Labor Party has proposed the following suite of reforms should it be elected to Government:

Tougher penalty provisions for particular offences.

Currently, the civil penalty provisions in the Fair Work Act 2009 (Cth) provide for a maximum penalty of $10,800 for individuals and $54,000 for corporations.  Labor considers that this penalty is insufficient to serve as an adequate deterrent to underpayment.  It also noted that failing to deter employers from underpaying workers provides a competitive advantage to those underpaying employers.

Whilst Labor says that it intends on seeking the views of all stakeholders on such penalties, it is minded to institute reforms whereby the Courts might have a range of powers to deal with employers who recklessly and intentionally underpay workers, including:

  • Potentially increasing the maximum penalties to $43,200 for individuals or $216,000 for corporations;
  • Alternatively, a potential sentence of 2 years imprisonment for individuals;
  • The power to disqualify directors in conjunction with the higher penalties.

The Labor Party proposed that these significantly increased penalty provisions also apply to sham contracting offences.

Deterring ‘Phoenixing’

Labor’s plan also seeks to introduce new enforcement powers to prevent the practice of ‘phoenixing’. Phoenixing, as defined in the Labor Party plan:

“…involves the intentional transfer of assets from an indebted company to a new company to avoid paying creditors, tax or employee entitlements… Meanwhile, a new company, often operated by the same Directors and in the same industry as the old company, continues the business under a new structure…”

Similar to the reforms implemented by the ATO to deter companies from this practice in terms of avoiding superannuation guarantee payments, Labor intends on making directors personally liable for outstanding entitlements owed to employees, and also personally liable for civil penalties issued in accordance with the Fair Work Act 2009 (Cth).

‘A more even playing field for workers’

Labor noted the FWO’s figures that the complaint rate of temporary migrants is 3 times the rate for the rest of the workforce, commenting that ‘the Productivity Commission has found that migrant workers are more vulnerable to exploitation than are other employees…’.

The Labor Party plan went on to submit that ‘given the perception amongst unscrupulous employers that they can perhaps get away with exploiting overseas workers, there is even less incentive to employ Australian workers’.

Noting that it is currently a criminal offence to employ someone who is not entitled to work – an offence punishable by up to 2 years’ imprisonment or up to 5 years’ imprisonment if that worker is also then exploited – Labor plan to ‘introduce a new criminal offence for those who deliberately exploit temporary overseas workers, and fail to meet their obligations to the worker under the Fair Work Act, even if they are employing the worker in accordance with the terms of their visa…’.   The proposed penalties are consistent with the civil penalty provisions suggested above, together with the potential for up to 2 years’ imprisonment.

A ‘Temporary Overseas Worker Support Pack’ is also being contemplated by Labor.  The Pack would provide information to overseas workers as to their employment entitlements and rights, including union details and details for relevant bodies that might provide them with assistance in their employment.  Employers who employ overseas workers would be required to provide the Pack to its overseas workers, with civil penalties applying for failure to do so.

Lessons for Employers

The implementation of these measures is subject to a Labor Government being elected, and then the proposed reforms passing the usual legislature processes.  However, the Plan gives a general indication of the Labor Party’s direction of government policy in relation to the seriousness of underpaying employees and exploiting overseas labour.

Lisa Aitken, Managing Partner