Insight

Accessorial Liability in the Fissured Workplace

The wilfully blind beware.

Accessorial Liability

Rohen Cullen and Caroline O’Connor

May 17, 2017 10:11 AM

The recent spate of news involving significant underpayments of wages by the franchisees and subcontractors to some of Australia’s most well-known corporate names (most notably 7-Eleven), have highlighted the tricky area of head company’s legal and moral liability for employees of other companies in their supply chain.

This area is receiving significant attention by regulators, plaintiffs, and legislators. Companies should take note of these developments in their risk management planning and take steps to ensure that they are not exposed to legal liability or adverse publicity due to the breaches of others.

The Problem

Professor David Weil likens the progress of corporate job shedding to fissuring in geology in his book The Fissured Workplace. [1]

Beginning in the late 1980s, major companies faced intense pressure to improve financial performance. They responded by focusing their businesses on “core competencies”—the activities that represented their value proposition to their market—and by shedding less essential activities.

Large companies typically started by outsourcing peripheral activities like payroll and security. Over time, and as management worked out how to maintain quality standards through better contract management, the practice spread to activities more central to the company’s core purpose: plant operators at a coal mine, housekeeping and front desk at a hotel, and even legal research and due diligence in a law firm.

Like a fissure in a rock that deepens and spreads, once an outsourced activity is shed, the secondary employer often hires smaller businesses to provide workers for specific facilities or shifts. Because each level of the structure requires a financial return and because, as you move downward, wages typically represent a larger share of overall costs while profit margins become slimmer (and the contractors more competitive), the pressure to reduce labor costs to win or maintain work becomes severe. This increases the incentives to cut corners, the result of which may be breaches of awards or other minimum wage obligations.

The Law in Australia

Unlike in the United States, Australia does not recognize the doctrine of “joint employment” in legislation or common law. Section 550 of the Fair Work Act 2009 (Cth) (FW Act) does, however, create liability for a contravention of the FW Act on a person “involved” in that contravention.

“Involvement” is broadly defined. Naturally it includes aiding, abetting, counselling, procuring, inducing, or conspiring with others to effect the contravention. More broadly, though, it includes “being in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention.”

So when will a third party be, by omission, directly or indirectly “knowingly concerned” in another’s breach? These cases tell us the following:[2]

  1. In order for a person to be knowingly concerned in a statutory contravention, that person must have been an intentional participant with knowledge of the essential elements constituting the contravention.[3]
  2. It is not, however, necessary that they also know that those elements actually amount to a contravention.[4]
  3. Actual knowledge of the essential elements constituting the contravention is required. In some cases, actual knowledge can be inferred from the combination of a defendant’s knowledge of suspicious circumstances and the decision by the defendant to not make inquiries to remove those suspicions. In other words, their “willful blindness.”[5]
  4. Determining whether a person has been “willfully blind” requires consideration of their knowledge of matters giving rise to suspicion and the circumstances and reasons why they did not make the obvious inquiry. As Lord Summer explains it:

A thing may be troublesome to learn, and the knowledge of it, when acquired, may be uninteresting or distasteful. To refuse to know any more about the subject or anything at all is then a wilful but a real ignorance. On the other hand, a man is said not to know because he does not want to know, where the substance of a thing is borne in upon his mind with a conviction that full details or precise proofs may be dangerous, because they may embarrass his denials or compromise his protests. In such a case he flatters himself that where ignorance is safe, ‘tis folly to be wise, but there he is wrong, for he has been put upon notice and his further ignorance, even though actual and complete, is a mere affectation and disguise.[6]

The Trend in Prosecutions

Historically, the factual scenarios that have assigned accessorial liability to third parties have mostly involved the liability of directors (particularly where the employing company is insolvent and so cannot be pursued).

Increasingly, however, the provisions are being successfully used to prosecute corporate entities up the supply chain of labor, franchisors, and internal and external advisers, such as HR managers and accountants “involved in” the breach.

For example:

  1. In November 2016, the Fair Work Ombudsman (FWO) successfully prosecuted both the employer of underpaid employees in a YogurBerry franchise in the Sydney CBD, and the head Australian company and master franchisor of the YogurBerry chain, YBF Australia Pty Ltd, along with payroll company CL Group. Almost half of the $146,000 civil penalty was imposed, not on the employer, but on the franchisor and payroll company because these parties “had knowledge of, and participated in establishing rates of pay, making payment of wages, determining hours of work, and dealing with employment-related matters” for the employees.[7]
  2. In October 2016 the Federal Circuit Court imposed penalties against an HR manager who it found was involved in making unlawful “administration” deductions from the wages of cleaners working in Melbourne's Federation Square and Crown Casino, and for failing to keep proper records of those deductions. The HR manager did not personally profit from the breaches and denied any knowledge of the unlawful deductions, but the court found it was more probable than not that he was aware of the contraventions by the employer or, at the very least, was willfully blind and imposed civil penalties on that basis.
  3. In May 2017, an external accountant was accessorily liable for its clients underpayment of wages for failing to ensure current award rates of pay in their MYOB payroll system. The court held that the accountant had knowledge of the applicable award rates, and it was not acceptable to merely process the (below award) rates given to it by the employer.

In addition to prosecutions, the FWO has been successful in obtaining “enforceable undertakings” in respect to some of Australia’s biggest brands.

For example, in 2012 the FWO commenced proceedings against Coles Supermarkets regarding officers of Coles’s contractor (in liquidation) who were contracted to Coles to provide trolley collection services and officers of a subcontractor to that contractor (also in liquidation) who actually employed the trolley collectors.

The FWO alleged Coles (and its immediate contractor) knew the cost of their contracts for trolley collection services was insufficient to and down the supply chain cover of the minimum wage for those ultimately performing the work. Proceedings against the subcontractors resulted in penalties against a former company director and operations manager totalling $188,100 (75 percent of the maximum) for their role in underpaying 10 trolley collectors more than $220,000.

At the top of the supply chain Coles (against whom the proceedings were discontinued) signed an Enforceable Undertaking (EU) in which it:

  • admitted it had “an ethical and moral responsibility” for the conduct of all persons involved in its business;
  • agreed to back-pay $220,000 owed to the 10 Adelaide trolley collectors by the two third-tier trolley service providers at the end of the supply chain; and
  • established a $500,000 fund to be used to back-pay any other trolley collectors who were subsequently found to have been underpaid.

The Future: Legislative Reform

Earlier this year, the federal government introduced Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017. The bill:

  • imposes liability on holding companies and franchisors for contraventions where they know (or ought to have known) of the contraventions and did not take reasonable steps to prevent them;
  • adds a new penalty regime for “serious contraventions” (up to $108,000 for individuals and $540,000 for corporate bodies); and
  • increases penalties for failures in record keeping; for example, payslips.

The bill has not yet been passed. Further legislative reforms are anticipated following the federal government’s Corporate Avoidance of the Fair Work Act Inquiry, which is currently underway and due to report its findings in August 2017.

Lessons Learned

Franchisors and the head companies of service supply chains should review their labor arrangements and plan for the introduction of the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017, noting that if “reasonable steps” are taken to prevent the contraventions, liability of a contravention of the FW Act will not be attributed to franchisor or holding company.

The explanatory memorandum to the bill suggests reasonable steps include ensuring that the contractual documents require franchisees/contractors to comply with workplace laws, such as providing franchisees with a copy of the FWO’s Fair Work Handbook, encouraging franchisees or subsidiaries to cooperate with any audits by the FWO, and establishing a contact or phone number for employees to report any potential underpayment to the business and auditing of companies in the network.

Companies should also ensure that its operational leaders, contract managers, HR managers, and others are aware of the accessory provisions in the FW Act and the circumstances that will give rise to an obligation on them to make further inquiries.

------------------

[1] Weil, D. (2014) The Fissured Workplace: How Work Became so Bad for so Many and What Can Be Done to Improve It. Cambridge, MA: Harvard University Press

[2] The provisions are similar to the accessorial liability provisions under the Corporations Law and Consumer Protections Law, and their meaning is reasonably well settled.

[3] Yorke v. Lucas [1985] HCA 65; (1985) 158 CLR 661 at 670.

[4] Yorke v. Lucas at 667; Australian Competition and Consumer Commission v. Giraffe World Australia Pty Ltd (No 2) [1999] FCA 1161; (1999) 95 FCR 302 at [186]; Medical Benefits Fund of Australia Ltd v. Cassidy [2003] FCAFC 289; (2003) 135 FCR 1 at [8][13].

[5] Pereira v. Director of Public Prosecutions [1988] HCA 57; (1988) 82 ALR 217 at 220.

[6] The Zamora (No 2) [1921] 1 AC 801at 812–3, This passage has been quoted with approval in several Australian cases, including Official Trustee in Bankruptcy v Mitchell [1992] FCA 521; (1992) 38 FCR 364 at 371; Richardson & Wrench (Holdings) Pty Ltd v. Ligon No 174 Pty Ltd [1994] FCA 1222; (1994) 123 ALR 681 at 693–4; Australian Securities and Investments Commission v. Adler [2002] NSWSC 171; (2002) 168 FLR 253 at [209].

[7] Fair Work Ombudsman v. YogurBerry World Square Pty Ltd [2016] FCA 1290

------------------

Rohen Cullen practices exclusively in workplace relations and employment law. Rohen is consistently ranked as one of the leading lawyers in Australia by Best Lawyers®. In 2013 and 2017, Rohen was the Best Lawyers “Lawyer of the Year” in the category “Labor and Employment” in the Queensland market. He can be found at https://www.linkedin.com/in/rohen-cullen-3ba3612b/.

Caroline O’Connor is a senior associate with Franklin Athanasellis Cullen and practices in all areas of employment and industrial relations law. Both in private practice and as a solicitor employed by the FWO, Caroline has acted for the FWO in numerous civil penalty proceedings where the accessorial liability provisions were successfully utilized. She can be found at https://www.linkedin.com/in/caroline-o-connor-ab8b5a13a/.

Related Articles

Blurred Lines


by Andrew Kirby

Where does responsible lending end and unconscionability begin? Australian courts have come to vastly different conclusions. An overview of current case law.

Australian Courts Assess Loan Repayment

Presenting The Best Lawyers in Australia™ 2025


by Best Lawyers

Best Lawyers is proud to present The Best Lawyers in Australia for 2025, marking the 17th consecutive year of Best Lawyers awards in Australia.

Australia flag over outline of country

Australasian In the Law: Legal News From Our Recently Awarded Countries


by Gregory Sirico

Best Lawyers highlights the top legal stories out of Australia, New Zealand, Japan and Singapore, in conjunction with the 2024 Australasian launch.

Suited man sitting at table using a tablet

The Best Lawyers in Australia™ 2024 Launch


by Best Lawyers

Best Lawyers is excited to announce The Best Lawyers in Australia™ for 2023, including the top lawyers and law firms from Australia.

Australian Parliament beside water at sunset

Announcing The Best Lawyers in Australia™ 2023


by Best Lawyers

The results include an elite field of top lawyers and firms from Australia.

The Best Lawyers in Australia™ 2023

Celebrating Lawyers From Around the World: Annabel West


by Rebecca Blackwell

We are honoring the achievements and career of Annabel West, lawyer and wife of South Australian Premier Peter Malinauskas.

Accomplished Australian Lawyer Annabel West

Checks and Balances


by Michael Sullivan

Ensuring probity and above-board behaviour in both the public and private sector is always important—and that importance can be particularly stark during a major crisis like the pandemic. An overview of a year’s worth of commissions and inquiries.

Australian Commission Governance Structure

The Partnership Opportunity


by David Harley, Shaun Whittaker, Tony Rutherford, and Troy Lewis

Doing well and doing good need not be mutually exclusive. Housing developments that provide both solid long-term returns and positive social outcomes, often through public-private partnerships, are an idea whose time has come throughout Australia.

Housing Developments in Australia

A Climate Duty


by Lara Douvartzidis and Samantha Daly

Converging trends in Australia and the Netherlands: reasonable foreseeability in climate change law and other novel developments.

Climate Change Law in Australia

The Great Debate Between Agriculture, Mining and Environment


by Rebecca Hoare

Can we really have it all?  The pursuit of the harmonious intersection of Australia’s agricultural and resources industries and the environment.

Australia Agriculture, Mining & Environment

What Does Workplace Harassment Look Like in 2021?


by Victoria E. Langley

The COVID-19 pandemic reshaped the U.S. workforce. But has it changed harassment on the job?

Workplace Harassment in 2021

Announcing the 2022 Best Lawyers™ in Australia


by Best Lawyers

The results include an elite field of top lawyers and firms.

Announcing the 2022 Best Lawyers™ in Australi

What Does It Take to Join The Best Lawyers in Australia?


by Best Lawyers

We asked The Best Lawyers in Australia: What advice would you give your younger self?

Nominate a Lawyer in Australia

Working With Changes


by Best Lawyers

Carolyn Pugsley, the Joint Global Head of Practice for Corporate, Australia at Herbert Smith and Freehills, discusses policy changes affecting the M&A market in Australia as well as the impact of the pandemic on the practice.

An Interview With Herbert Smith and Freehills

Can Your Option to Purchase Get Lost in a Franchise Agreement?


by Alicia Hill and Benjamin Caddaye

With the changing of a contract in a franchise agreement, certain rights you thought you were entitled to might get lost in translation.

Franchise Agreements and Purchase Options

Public Health Reform: What does the future look like for patients?


by Vanessa Mellis

Increased government stewardship and a stronger user orientation are two of the key elements shaping this process.

Public Health Reform

Trending Articles

2025 Best Lawyers Awards Announced: Honoring Outstanding Legal Professionals Across the U.S.


by Jennifer Verta

Introducing the 31st edition of The Best Lawyers in America and the fifth edition of Best Lawyers: Ones to Watch in America.

Digital map of the United States illuminated by numerous bright lights

Unveiling the 2025 Best Lawyers Awards Canada: Celebrating Legal Excellence


by Jennifer Verta

Presenting the 19th edition of The Best Lawyers in Canada and the 4th edition of Best Lawyers: Ones to Watch in Canada.

Digital map of Canadathis on illuminated by numerous bright lights

Legal Distinction on Display: 15th Edition of The Best Lawyers in France™


by Best Lawyers

The industry’s best lawyers and firms working in France are revealed in the newly released, comprehensive the 15th Edition of The Best Lawyers in France™.

French flag in front of country's outline

Announcing the 13th Edition of Best Lawyers Rankings in the United Kingdom


by Best Lawyers

Best Lawyers is proud to announce the newest edition of legal rankings in the United Kingdom, marking the 13th consecutive edition of awards in the country.

British flag in front of country's outline

Announcing the 16th Edition of the Best Lawyers in Germany Rankings


by Best Lawyers

Best Lawyers announces the 16th edition of The Best Lawyers in Germany™, featuring a unique set of rankings that highlights Germany's top legal talent.

German flag in front of country's outline

Celebrating Excellence in Law: 11th Edition of Best Lawyers in Italy™


by Best Lawyers

Best Lawyers announces the 11th edition of The Best Lawyers in Italy™, which features an elite list of awards showcasing Italy's current legal talent.

Italian flag in front of country's outline

Combating Nuclear Verdicts: Empirically Supported Strategies to Deflate the Effects of Anchoring Bias


by Sloan L. Abernathy

Sometimes a verdict can be the difference between amicability and nuclear level developments. But what is anchoring bias and how can strategy combat this?

Lawyer speaking in courtroom with crowd and judge in the foreground

Things to Do Before a Car Accident Happens to You


by Ellie Shaffer

In a car accident, certain things are beyond the point of no return, while some are well within an individual's control. Here's how to stay legally prepared.

Car dashcam recording street ahead

The Push and Pitfalls of New York’s Attempt to Expand Wrongful Death Recovery


by Elizabeth M. Midgley and V. Christopher Potenza

The New York State Legislature recently went about updating certain wrongful death provisions and how they can be carried out in the future. Here's the latest.

Red tape blocking off a section of street

Find the Best Lawyers for Your Needs


by Jennifer Verta

Discover how Best Lawyers simplifies the attorney search process.

A focused woman with dark hair wearing a green top and beige blazer, working on a tablet in a dimly

Key Developments and Trends in U.S. Commercial Litigation


by Justin Smulison

Whether it's multibillion-dollar water cleanliness verdicts or college athletes vying for the right to compensation, the state of litigation remains strong.

Basketball sits in front of stacks of money

Prop 36 California 2024: California’s Path to Stricter Sentencing and Criminal Justice Reform


by Jennifer Verta

Explore how Prop 36 could shape California's sentencing laws and justice reform.

Illustrated Hands Breaking Chains Against a Bright Red Background

Is Premises Liability the Same as Negligence?


by Jeremy Wilson and Taylor Rodney Marks

In today's age, we are always on the move, often inhabiting spaces we don't own. But what happens when someone else's property injures you or someone you know?

A pair of silhouetted legs falling down a hole with yellow background

Woman on a Mission


by Rebecca Blackwell

Baker Botts partner and intellectual property chair Christa Brown-Sanford discusses how she juggles work, personal life, being a mentor and leadership duties.

Woman in green dress crossing her arms and posing for headshot

Best Lawyers Celebrates Women in the Law: Ninth Edition


by Alliccia Odeyemi

Released in both print and digital form, Best Lawyers Ninth Edition of Women in the Law features stories of inspiring leadership and timely legal issues.

Lawyer in green dress stands with hands on table and cityscape in background

Beyond the Billables


by Michele M. Jochner

In a recently conducted, comprehensive study, data reveals a plethora of hidden realities that parents working full-time in the legal industry face every day.

Women in business attire pushing stroller takes a phone call