Quarterly Employment Law Update – Stronger Regulation on the Horizon for Employers

It has become a practice to provide our readers with a quarterly update of potential significant developments and reforms about which all employers should, at a minimum, be aware. We encourage our readers to start thinking about these issues and those aspects that may affect them, so they can take appropriate steps to protect their business. The employment relations landscape in Australia is fast becoming anything but kind to employers, with increased regulation and enforcement powers being signalled by both the Government of the day and the Labour party against business owners and employers.

This client alert examines three seminal potential reforms that are currently receiving a considerable amount of political, media and community discourse which could have real implications for employers in Australia.

Criminal Liability Against Employers for Exploitation of Workers

At the beginning of March 2019, the Coalition announced its support for criminal sanctions against directors for employe­rs who engage in the “most serious and egregious exploit­ation” of workers. This follows a new report released by the Migrant Workers’ Taskforce (“the Taskforce”) which found wage under­payment was a widespread and entrenched­ issue across the temporary migrant workforce.

The incumbent Jobs and Industrial Relations Minister, Kelly O’Dwyer, said in relation to the report that the government had given “in principle” support for the recommendations of The Taskforce, including the impos­ition for the first time of criminal sanctions against employers engaging in “clear, deliberate and systemic” wage theft. The Taskforce, chaired by Allan Fels, also recommends a national labour hire registration scheme operate in various “high risk” industries and occupations – namely as being horticulture, meat proces­sing, cleaning and security.

Significantly, the Taskforce’s report advocates for the criminalisation of wage underpayments which are classed as being “deliberate, serious and intentional contraventions.” The new criminal liability measures are aimed at sending a clear signal to unscrupulous employers that exploit foreign workers or engage in practices that clearly contravene the minimum wage requirements under the Fair Work legislation and modern awards.

It should be noted that the reforms proposed by the Taskforce appear to extend the Fair Work Act 2009 (Cth) (“FW Act”) which provides a predominantly civil regime for prosecuting non-compliance and as such, the Taskforce has suggested the FW Act might not be the most suitable instrument for applying criminal sanctions, and separate legislation should be considered. At this stage, Ms O’Dwyer has said the government would consult with stakeholders and “carefully consider” the most appropriate­ legislation to embody the Taskforce’s recommendations.

In addition, the Taskforce has called for the general level of penalties for breaches of the wage exploitation-related provisions in the FW Act and modern awards to be increased and for the government to give the courts specific power to make advers­e publicity orders and banning orders against employers and directors who underpay workers.

The reforms proposed by the Taskforce are potentially of great consequence to employers and we recommend all our readers ensure they are regularly undertaking audits to ensure their employees are being remunerated appropriately and all underpayment issues are rectified proactively.

Annualised Salaries

On 27 February 2019, a Full Bench of the Fair Work Commission issued its decision confirming that it will be standardising annualised salary clauses in various modern awards. It will do so in an effort to provide a “safety net” of terms and conditions for at least 19 awards covering industries such as mining, banking, hospitality, health and legal services.

On the ability to apply annualised arrangements to part-time employment, the Full Bench said it was “not possible to formulate any standard provision” because of the “wide divergence in part-time employment provisions as between different modern awards”. Interested parties have, however, been invited to make application with respect to a specific modern award to vary the annualised salary provision to extend the operation to part-time employees. In addition, interested parties have a month to make submissions on whether the Full Bench should change its categorisation of the modern awards to which the model annualised salary clauses will affect.

The Full Bench will also insert a model annualised wage clause in the pastoral and horticultural awards for the first time, after rejecting submissions from the National Farmers Federation that employers in these industries would find it especially hard to comply with the record-keeping requirements. At this stage, the Full Bench has reaffirmed its view that employers will be required to put in writing their method of calculating annualised wages, or that annualised arrangements should specify “outer limits” on how many hours employees can work that would otherwise attract penalty rates under their award.

There will be three new model annual wage clauses. The first will be inserted in modern awards which already contain annualised wage provisions not requiring employee consent, in industries and occupations involving generally stable hours. In addition, there will be a model clause for employees who work variable hours, or hours that attract penalty rates. Finally, for employees in the restaurant and hospitality industry annualised salaries will require a minimum 25% increase in normal rates.

Although the model annualised salary clauses are yet to be introduced, there imminent introduction will have significant consequences for employers who have traditionally ignored modern awards because they pay annualised salaries. Of most importance are the requirements to advise employees in writing, and keep a record of:

• the annualised wage;
• which of the provisions of the award that are satisfied by the annual salary;
• the method used to calculate the annual salary, including specifying each separate component of the annual salary and any overtime or penalty assumption used in the calculation; and
• the outer limit of ordinary hours and overtime hours which an employee may be required to work without any further entitlement to pay.

It is important to note that where an employee works hours in excess of the outer limits as set out above, they will be able to be paid for those hours in accordance with the terms of the award, and failure to do so will accrue an underpayment liability.

At this stage, employers need to be aware of the new standardised salary and wage annualisation clauses and that once they come into effect, it may be necessary to review and re-issue employment contracts to ensure all-up salaries paid to award-covered employees meet the relevant industrial requirements so as to avoid underpayment issues.

Labour’s Movement to a “Living Wage”

In March 2019, opposition Leader Bill Shorten, and a key frontbencher have separately indicated that a Labour Government might be willing to change the FW Act minimum wages objective to guide the Fair Work Commission in moving towards a nationalised “living wage”.

Mr Shorten suggested in Canberra this week that if Labour takes power at this year’s election, it will consider changing the minimum wages objective, which says the Fair Work Commission must take into account five considerations, of which one is the relative living standards and needs of the low-paid (emphasis added). He said the Labour party wants to “help the Fair Work Commission with the guidelines they use to set the minimum wage and we want to take into account all factors.” Possible reforms to the minimum wages objective may see that Fair Work Commission’s annual review of minimum wages in the future move considerably in favour of employees and especially the low-paid.

One thing that is certain, if a Labour Government wins at the next election, it is likely that employers can expect significant industrial change and a greater cost burden to business when employing. We also expect an increase in regulation and more potent penalties against corporations and directors for underpayment breaches and other contraventions of the FW Act and modern awards.

In light of the certain changes regarding underpayment breaches and annualised salaries, we encourage our clients to review their remuneration practices and specifically their contracts of employment and modern award compliance.

If any of our readers require further information in relation to any aspect of this alert or need specialist employment law advice or assistance, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.