Protecting against accessorial liability

The Fair Work Ombudsman has been very active in pursuing individuals who it believes have reasonably been a party to contraventions of minimum wages and conditions whether overtly in action or by omission or failure to exercise due diligence.

Investigations into cases involving large businesses such as Coles and Woolworths and Myer who contract work out to other entities which do not meet their compliance obligations have been undertaken from the perspective that the principal in the supply chain should have known and acted to prevent the non-compliance even though it was not the actual employer.

This raises questions about who might be considered an accessory to a contravention and here is what the Fair Work Ombudsman recently had to say about that.

Section 550

Under section 550 of the Fair Work Act; a person who is involved in a contravention of the Act is held responsible for that contravention. A person is involved in a contravention if they:

  • have aided, abetted, counselled or procured the contravention; or
  • have induced the contravention, whether by threats or promises or otherwise; or
  • have been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
  • have conspired with others to effect the contravention.

What does this mean for individuals?

Anyone who is found to be involved in a contravention of the Act can be personally liable for compensating employees and paying penalties imposed by the court. The Fair Work Ombudsman has used this provision to hold company directors personally accountable for the actions of their companies. This effectively means that liquidating a company is no guarantee of avoiding the consequences of non-compliance with the Act.

But section 550 can extend to anyone involved in a contravention. This can include human resources and payroll officers, line managers, accountants and advisors.

What does this mean for companies?

If a company, as the employing entity, contravenes the Act: that company is automatically responsible for that contravention and may have penalties imposed by a court. But under section 550 a company that is not the employing entity, may be found to be involved in a contravention and may also have penalties imposed by a court.

This is important for companies to consider especially in their supply-chain and procurement processes. Effectively it means that companies cannot outsource their non-compliance. For example if one company contracts another company to supply cleaning staff; and those cleaners are underpaid: both companies may be held accountable by a court. 

This has broad implications for businesses that use outsourcing, franchise arrangements or complex supply-chains. The full scope of section 550 in these types of arrangements has not been settled by the courts, however, the Fair Work Ombudsman is determined to take action to ensure a culture of compliance is established and maintained broadly across all businesses.

You should also note that fines of up to $10,800 per offence can be imposed on individuals and up to $54,000 per offence can be imposed on companies.

What you need to do

Firstly, if you are an employer, ensure that you are aware of and comply with your own obligations as an employer and that these are properly documented in employment contracts/letters of offer etc.

Secondly, if you contract work out to another party, verify that that contract enables the other party to be capable of meeting its employment compliance obligations and that that other party actually does so.

Thirdly, if you are an internal HR Manager or other Manager, ensure that you have processes in place that genuinely test whether work contracted out is conducted in accordance with employment obligations (ie people are contracted and paid appropriately). This needs to be more than having the contractor just tick a box

Fourthly, if you are an external business advisor, ensure that the advice that you provide is competent and, if you are not confident of your competency in employment matters, engage a delivery partner to provide that competency.

Ways that we can help

Ridgeline HR has been providing just that sort of advice since we started in 2000. We have done this with hundreds of clients across all sorts of industries throughout Australia. We have serviced the members of an industry association and the clients of accounting firms for many years and we have been recognised by federal government agencies in the past for our expertise.

We now also offer a supply chain education and audit service which in essence involves us auditing supply chain participants’ compliance and advising them on any areas that they need to fix. This proactive approach to assuring downstream compliance provides a simple and practical approach to managing the risk of accessorial liability.

If you are interested in exploring ways in which we might be of assistance in these areas, call Peter Maguire on 0438 533 311 or email peter@ridgelinehr.com.au

Will your termination pass the “3 tents test”?

Having been in the field of human resources management for over 30 years, there have been plenty of occasions where I have had to consider disciplinary action and termination of employment as remedies for misconduct.

In doing so, we need to consider fairness from a couple of angles:

  • Substantive fairness which requires that the action taken would not be harsh, unjust or unreasonable and
  • Procedural fairness which is about ensuring that due process has been followed and the principles of natural justice have been complied with

A process that I use to consider the substantive fairness of an action is to assess them against the “3 tents” namely:

  • Content: what actually happened, ensuring that you are aware of the facts of events that have given rise to consideration of action?
  • Intent: was the action or dereliction of duty or other offence deliberate or was it due to a misunderstanding or a heat of the moment thing and is it in or out of character for the individual concerned?
  • Extent: what was the effect of the action or dereliction of duty or other offence on the business and/or employees and/or other parties?

Of course there are the procedural elements to attend to as well but ensuring that the action that you propose will stand up to the “3 tents test” is a good start.

7 steps to effective policies

One of the most common requests we get at Ridgeline HR is for assistance in developing HRM policies and procedures for our clients.

Many businesses think that simply having a policy is enough to demonstrate compliance but there is actually a lot more to it than that as businesses too often find out the hard way.

It is not much good having a policy if it is not practised in fact and the fact is that, if a business doesn’t follow it’s own policies, it automatically has a compliance problem.

And there is quite a bit of work involved in ensuring that policies are both appropriate and managed in the right way to achieve their objectives.

There are 7 steps to effectively implementing policies:

  1. Be clear about why the policy is necessary(and, if it isn’t, don’t do it).
  2. Ensure that the policy aligns in content and presentation with your vision, values and strategy (don’t create contradictions).
  3. Communicate the policy appropriately to everyone to whom it has application (on launch and progressively through inductions, refreshers etc as necessary).
  4. Train people who have roles to play in application of the policy in how to perform those roles in the right way.
  5. Assess risks (eg people who might have potential to breach the policy or need additional support to comply with it) and implement appropriate risk management strategies.
  6. Consult people and review practice regarding the policy to ensure that it is working as intended.
  7. Review the policy annually to take account of any legislative or best practice developments as well as organisational experiences to continuously improve it and ensure ongoing compliance – return to Step 1.

Perhaps the thing that I find most remarkable about most organisations which focus on risk management is that they don’t actually assess risks that exist in their organisations when they implement a policy. See Step 5 above.

There is too often a mentality that, if the rules are communicated and an individual then doesn’t follow those rules, the risk is transferred from the business to that individual.

For organisations that might be in that space, I suggest that you consider why the policy is needed in the first place – ie what purpose (other than complying with a legal obligation) does it serve in the management of people?

Or, to put it another way, why did it become a legal obligation in the first place?

Do your policies exist for policies’ sake or do they have a positive impact on your people and culture?

When do I hire a HR Manager?

This is a question that I am commonly asked by SMB owners, often when the business is a little out of control because it has grown to the point where the owner cannot personally supervise everything that is going on anymore.

My initial response is that you are asking the wrong question up front and you should first ask: “What is the best way to manage the growing number of people in my business?”

Firstly let’s break that down into component parts which I call the 4Cs of people management:

C1: Commitment

This is the base level of people management and is fundamentally about ensuring that the business  has a plan providing clear direction and understands and is compliant with its legal obligations as an employer in relation to such things as:

  • Wages and conditions of employment
  • Workplace health and safety
  • Equal opportunity, discrimination and harassment
  • Privacy

C2: Capability

This is about building the processes for managing people which include or add to what you have done in compliance but also facilitate:

  • Effective conversations about team and individual performance and development
  • Skills analysis and learning and development activities that are aligned with business needs
  • Reward and recognition that has meaning, is properly aligned and is affordable, providing the right return on investment
  • Targeted recruitment and retention of the right employees and fair and effective management of the exceptions.

C3: Competency

Having put the systems in place, you need to develop the abilities of your people to apply them and comply with them in a consistent and competent manner by:

  • Training your leaders and managers in the application of the processes with their teams and individual team members
  • Educating all of your people about the processes and their roles and obligations
  • Ensuring that you practice what you preach and both require and allow your managers to do their jobs and
  • Incorporating the leadership qualities you need in your criteria for selecting your managers

C4: Culture

This is when it all comes together – you know that you are compliant with your legal obligations, you have people management systems that work and your leaders and managers are really driving improvements because you:

  • Have a clear vision and business strategy with measurable goals for improving business performance and “your people get it”
  • Understand the competencies that you need and your investment in training and development delivers improvements in performance
  • Engage your people in improving business performance and recognize and reward them for their contributions and
  • Have leaders and managers who ensure that your people are on board, contributing and continuously improving their capabilities and performance.

The truth is that your specialist HR resource needs (ie the skill set required) will differ depending on where your business is in the above hierarchy.

At levels C1 – C2, there is a greater emphasis on administration, compliance and risk management whereas at C3 – C4, there is a much more strategic focus on organizational development, engagement and leadership.

What will not change is that you need your managers and leaders to be on board every step of the way because they are the real people managers every day.

That leaves us with a different but much better question: “How do I best support my managers to do their jobs better?”