Instances of systemic and deliberate wage underpayment in the Australia fuel industry were first revealed to the Australian public via the ABC’s ‘Four Corners’’ expose of wage underpayment practices in the fuel industry in March 2015.
Although originally portrayed as a practice largely limited to lower paid industries with high concentrations of Visa Workers – such as retail, hospitality and cleaning services – it soon became clear that similar instances were occurring in other ‘wealthier’ industries. Some of Australia’s biggest employers and trusted brands were subsequently caught up in wage underpayment scandals in the years that followed, including: Qantas, Coles, Woolworths, McDonalds, the Commonwealth Bank, Westpac, the National Australia Bank, Freehills Lawyers, and various national consulting and professional services firms.
The Australian Government initially responded to this issue with changes to the Fair Work Act (2009) that made franchisors liable for the wage underpayment actions of their franchisees where they were (or could reasonably expected to have been) aware of the behaviour. The new legislation, known as Section 558B of the Fair Work Act (2009), provides an explicit framework for the assignment of vicarious liability of franchisees to the franchisor. The legislative effect of Section 558B is as applicable to the relationships between large fuel companies and their associated businesses (i.e. dealers and commission agents), as it is to the more traditional franchisor/franchisee relationships that operate in other industries.
“This week, however, the financial risk for franchisors arising from wage underpayment practices was further expanded as a result of a court-sanctioned settlement of a class action launched by a group of 7 Eleven Franchisees in 2018”, said ACAPMA CEO Mark McKenzie.
The class action was taken under common law contract provisions – not the Fair Work Act 2009 – with the franchisees alleging that they had been misled about the viability of their service station businesses, given that their sites were not viable if correct wages were paid. They further alleged that they had therefore been ‘forced’ to underpay employees.
In an important signal to all franchise businesses, the Federal Court refused permission for the second part of the claim – that is, that the Franchisees were ‘forced’ to underpay wages – apparently on the basis that a franchise business could reasonably have been expected to exit the contract under such circumstances.
“Put simply, this aspect of the Federal Court decision means that franchise businesses cannot excuse their own wage underpayment actions by citing the provisions of any contract. Rather, if faced with such a dilemma, businesses are expected to hand the contract back rather than engage in illegal wage underpayment behaviour”, said Mark.
The case was reportedly settled this week for $98M – $45M of which comprised legal costs and commissions. A more comprehensive summary of the case can be found at: https://acapmag.com.au/2022/04/7-eleven-franchisee-class-action-results-in-98m-settlement/
The national media publicity of the settlement of the 7 Eleven Class issue followed the release of a report by the powerful Australian Senate Economic References Committee on wage underpayment in Australia, just a few days earlier (see: https://acapma.com.au/wp-content/uploads/2022/04/Systemicsustainedandshameful.pdf).
While Parliamentary Committee Reports always bring a degree of contention and political hyperbole – and this one is no different given the incendiary title – one of the Committee’s major recommendations was that an additional offence be introduced under Australian Competition Law to counter wage underpayment. The purpose of this amendment, the Committee suggested, would be to penalise businesses that derive unfair competitive advantage from deliberate and systemic wage underpayment. (i.e. on top of any penalty that may due and payable under the Fair Work Act 2009).
“Together with the already-made provisions of the Fair Work Act (2009), and the common law precedent set by the Federal Court Decision this week, the inclusion of a provision in Australian Competition Law would bring a very necessary focus on the distortive effects that wage underpayment has on competition in a high-volume, low-margin market like fuel retailing”, said Mark.
“The significance of the distortive impacts of wage underpayment is why the ACAPMA Board recently directed the Secretariat to make removal of the competitive distortion of wage underpayment in our industry the ‘number 1’ advocacy issue for ACAPMA over the next 12 to 18 months.
“Our role is not to be the ‘policeman’ – that is the role of the Fair Work Ombudsman. We do, however, have a duty to help our members navigate a complex wage system and to ensure that the competitive environment in which all our members operate is as fair as possible”, added Mark.
As a result, ACAPMA’s advocacy response to wage underpayment during the period of the next Australian Parliament will comprise three elements. First, ACAPMA will work with the Attorney General to simplify the Modern Award (and wage structures) to make it easier for businesses to comply with wage payment requirements. Second, the Association will work with the Fair Work Ombudsman to ensure that their investment in education and compliance actions is supported by the continued annual delivery of ACAPMA’s Compliance Partner Program (CPP) to member businesses.
“And finally, ACAPMA will work with the Federal Treasurer’s office and the ACCC to introduce appropriate penalties on businesses that gain unfair competitive advantage by ‘deliberately gaming’ wage payments to employees”, concluded Mark.
Further information about ACAPMA’s advocacy on wage underpayment in the Australian Fuel industry can be obtained by emailing communications@acapma.com.au or calling the ACAPMA Secretariat.
Published with permission from ACAPMA.
Source: https://acapmag.com.au/2022/04/wage-underpayment-fair-competition/.
