Six months into her role as the Fair Work Ombudsman Anna Booth is presiding over a crucial moment in Australia’s workplace relations history.
Long-mooted, wide-ranging laws in the recently passed Fair Work Legislation Amendment (Closing Loopholes) Act 2023 are now in place, which means that from 1 January 2025 employers will face the reality of a new federal criminal offence - wage theft (deliberate underpayment of workers). Steep penalties of up to 10 years in jail may be applied.
Directions from the Fair Work Ombudsman (FWO), Anna Booth, are now pending for a raft of mechanisms that are expected to impact employer organisations and their boards.
The ombudsman, currently responsible for running civil actions and remedies, must add to its operations a “criminal pipeline” that will flow to the Commonwealth Director of Public Prosecutions and the Australian Federal Police. Directors and employer organisations Australia- wide are concerned about these developments.
Charged with orchestrating the new regime, Booth brings a rare set of credentials to the role. The economist-turned-mediator was once a trailblazing union leader, who exposed sweatshop conditions in the clothing industry, and served as vice-president of the Australian Council of Trade Unions (ACTU). More recently, she was deputy president of the Fair Work Commission (FWC), where she led a program aimed at mending the fractious relationship between unions and management. She has also held a string of corporate roles and directorships, including an appointment as chair of law firm Slater and Gordon in 2007.
Notably, she’s completed the AICD Company Directors Course course twice — first to learn the ropes and later as a refresher. She insists that her previous experience makes her “sympathetic” to the challenges board members face in finding out what’s really happening in an organisation (on the subject of agenda items and timing, she says: “Woe betide anyone who asks the extra question”).
Her predecessor, Sandra Parker, is credited with giving the FWO its enforcement teeth. Not only was she responsible for a record sum of back- paid wages and entitlements (from 2021 to 2022, the FWO recovered more than $532 million for almost 385,000 underpaid workers), she prompted many big-name organisations to own up, self- report underpayments and pay up.
By contrast, Booth wrote a Statement of Intent for the Minister for Employment and Workplace Relations Tony Burke that outlined a collaborative, cooperative approach.
Now she’s had time to get her feet under the desk, after her appointment in 2023, she’s zooming in on preventative action, ramping up education and encouraging quick resolution of disputes.
Less is more
Booth’s goal is to stem the rising tide of underpayment litigation. “That might seem counterintuitive given there’s been legislation passed with a criminal jurisdiction,” she admits. “The impression is that we’re going to go harder but that’s not my intention.” She believes the severe new penalties will encourage employers to ensure they are compliant.
Consider the numbers. The FWO receives some 300,000 calls a year from employers and workers. Throughout the process, which starts with information and guidance then moves into conversations between employers and employees, that number is whittled down to about 5000 cases, which require investigation.
“That’s the reactive area and that requires an enormous amount of resources,” explains Booth. On top of this, the FWO makes annual announcements of priority sectors that the office will proactively investigate (the building and care sectors are the latest additions).
“I’m planning an evolution, not a U-turn,” insists Booth. “I want to ramp up the great work the FWO has been doing and balance things so a lower number of cases end up in the litigation pipeline. My aim is to create permanent change in Australian workplaces by dealing with the cause of the illness, not the symptoms.
“I want our litigation to be reformist, so we’re choosing cases that act as general deterrents. We’ll invest in them because it’s in the public interest to do so.”
As part of the collaboration process, an advisory group is being established with the Business Council of Australia, Australian Chamber of Commerce and Industry, Australian Industry Group, Council of Small Business Organisations Australia and ACTU.
Funding permitting, Booth also hopes to provide bigger businesses access to the insights and guidance of the FWO’s internal brains trust, known as the Knowledge, Advice and Technical Liaison Officers Team, which currently produces expert opinions and articles, and delivers insights to SMEs via its Employer Advisory Service. Only about 15,000 employers use the service each year, and that number could be much higher, she explains.
Debating complexity
In the past, the FWO has typically focused on simplifying its advice. However, under Booth’s plan, bigger businesses will have access to more sophisticated information and advice.
Is that a backdown? Booth has never bought the long-held argument that the cause of so many under-payment mistakes is a workplace relations and awards system that’s too complex to navigate. “Our internal enforcement board papers come across my desk,” she says. “I have full visibility of the mistakes being made, and they are not of complex things.” She offers examples of record- keeping failure and reneging on reconciling individual flexibility agreements with awards. “They didn’t get it wrong; they just didn’t do it,” Booth emphasises. Underpayment scandals can, and have, impacted businesses of all sizes and sectors, with recent examples including Woolworths, Qantas, World Vision Australia and even the Commonwealth Department of Finance.
At odds with Booth’s characterisation, numerous representative bodies continue to publicly highlight how the IR system’s current complexity carries the risk of penalising well- intended employers. In a December submission to the Fair Work Commission, the Business Council of Australia emphasised that applying pay obligations in awards remains a “highly specialised undertaking”. “Too often this complexity results in errors where those responsible for their application unintentionally misapply the correct requirements, despite their best endeavours.”
AICD submitted to the Senate Inquiry on the Closing the Loopholes Bill No 1, that due to the complexity of a system comprised of over 120 awards and numerous industrial instruments, “there is often a substantial risk of an organisation coming to an honest, though ultimately incorrect, view as to the amount payable”.
The Australian Small Business and Family Business Ombudsman also submitted on this point: “The vast majority of small businesses are doing the right thing; and small businesses often pay over the award rate in an attempt to buffer salaries in the event of a mistaken underpayment.” The most common reason employers receive compliance notices is for failure to pay annual leave correctly, often on termination.
“I understand in some cases there are two interpretations of an instrument, but there are always ways through interpretation questions,” says Booth. “As a member of the FWC, I worked on countless disputes where I made a decision on which side of the line a matter fell. Our systems are not being used well enough.”
The collaborative approach involves giving Fair Work inspectors greater discretion and opportunities for in-depth dialogue with employers, so cases can be resolved before a compliance notice is issued.
So, what’s new?
Booth is willing to give her take on the major areas of interest that are still progressing through respective processes.
For future litigation, the FWO is investing in a dual system that starts with the first contact on the infoline. “Everyone who touches a potential compliance breach will be educated to be on the lookout for indicia of intent,” says Booth. The task of delineating intentional wage theft from accidental or inadvertent underpayment goes to the legal experts.
“At a certain point, we’ll bifurcate to send criminal matters through a separate pipeline,” she adds. “Questions must be asked in the right way so evidence is not tainted. When the evidence is collected, it has to be isolated. That criminal pipeline has to be incredibly well-resourced and there’s a big technology aspect to that.”
New cooperation agreements might be used as a “safe harbour” for organisations, depending on the seriousness of the offence and whether disclosure is voluntary, frank and complete.
The safe harbour’s usefulness is not universally accepted, with interest groups like the Australian Industry Group describing it as “extremely limited”. AICD’s submission notes that “given that most cases of wage underpayment involve unintentional underpayment, excluding civil liability from the scope of Cooperation Agreements” they will likely have limited practical application. “Ultimately, the incentives for self- reporting must be sufficiently compelling so as to persuade companies to come forward.”
The yet-to-be-written Voluntary Small Business Wage Compliance Code will provide immunity from criminal prosecution for businesses with fewer than 15 employees. That scope is what makes the code “extremely narrow” according to the AICD.
“By way of comparison, the definition of a ‘small proprietary company’ under s45A of the Corporations Act refers to companies with less than 50 employees.” The AICD recommends the code be expanded to a much broader cohort if the intention is to “incentivise small businesses to self- report and to simplify the rectification process”.
A remediation guide, currently in development, will provide a pathway for employers in larger businesses. “We would work with them, with or without an enforceable undertaking,” says Booth.
That said, Booth points out that many matters today end with a simple closure letter. “It’s invisible and not talked about, but for every litigated matter or very large enforceable undertakings which hit the headlines, there are dozens of closure letters where we’re satisfied underpayments have been repaid and, importantly, systems have been put in place so it won’t happen again.”
Looking ahead
Booth’s mission is to encourage organisations to be aware of their obligations. She has a huge job ahead of her, ringing in the legislative changes, adjusting protocols and developing guides and means of support. “I need to operationalise this for people employed by the FWO so they’re not paralysed by ambiguity,” Booth says, pointing to the Ombudsman’s 980-plus employees. She knows that one size won’t fit all. Some sectors are more challenging than others.
By the end of her five-year term, Booth hopes to have stemmed the king tide of self-reports and improved workplace standards across the sectors. In her eyes, the FWO is a key player in Australia’s future, as workers and management co-design productive organisations. “The hygiene factor of getting the basic payroll system right,” she says, is just part of that story.
Anna Booth’s top 5 questions for directors
For new board members and to be asked quarterly: When is the next briefing on our key workplace obligations that arise from industrial instruments? What are the areas of key risk?
Who in our company has regular interactions with workforce representatives? Whether it’s a union or consultative committee representative, that person should be seen and heard at a board level. You want to understand how much is being said about corporate culture and upholding obligations. Are there proper processes for people to make reports, particularly anonymous ones?
What systems are in place to monitor risk and compliance, and how do regular reports come to the board? My experience as a board member and as an IR practitioner is that these matters are buried deep in organisations and general reports come through the people and nominations committee.
Who is accountable — the CEO or someone else? What impact does that have on the remuneration framework? You want to see the human responsible and hear it from their mouth.
Are there any perverse incentives in the remuneration strategy that would give managers the message that, for example, they shouldn’t log overtime? Do we have KPIs that can be achieved by keeping people quiet?
Mind the gaps
Directors must be on high alert in this rapidly changing industrial relations environment.
With the two sections of the Closing Loopholes legislation now law — its broad scope embracing wage theft, rights for labour-hire and casual employees, and minimum standards for the gig economy — we can expect comprehensive changes to the way many workplaces operate. Directors must respond accordingly.
Clayton Utz partner Amanda Lyras explains. “Directors should consider how their business labour models are best structured after these changes, how they can instil a culture of compliance with the obligations imposed on employers and how they can harness leadership to drive worker morale and productivity in response to some of the most significant industrial relations regulation in decades.”
It will not be easy. As Lyras emphasises, there is much detail to consider and the changes are wide-ranging. Herbert Smith Freehills partner Miles Bastick concurs. “It’s a challenging time because the legislative impact is significant and, for some business models, particularly disruptive,” he says. “Priorities for directors will be to ensure that their company’s employment arrangements are consistent with the legislation’s updated definitions and that they are not susceptible to claims that independent contractors and/or casuals have been inappropriately classified.”
Wage theft, in particular, has become a vexed issue for directors. Underpayment can be due to human error — in part, because of the sheer complexity of the system — and boards have found themselves increasingly embroiled in this issue. Seyfarth Shaw partner Michael Tamvakologos explains, directors get drawn into underpayment scandals either through media criticism or legally via accessorial liability provisions that can make individuals, in addition to the corporate entity, liable. He adds that it’s critical for directors to ask senior management the right questions about the employment mix and that auditing of rostering arrangements and payments is critical.
Prince Consulting, specialists in board relations on legislative developments, managing partner Michael Polis says the Fair Work Ombudsman has shown it is willing to act in the face of non-compliance and can be expected to enforce criminal prosecution if wage underpayments are intentional.
“Directors should be mindful of how the term ‘intentional’ may be defined going forward,” he says. “It may extend beyond obvious deliberate underpayments into grey areas such as failing to invest in systems, processes and reporting that would have prevented breaches.”
Bastick notes that the criminalisation of wage theft means it is critical for directors to be cognisant of the amendments that accompany the change. “The new definition of casual employment, for example, means that companies and their directors, particularly those with highly casualised workforces, will need to be abreast of the circumstances in which certain rostering and workforce management practices might point to permanent employment arrangements.
“In these circumstances,” he continues, “employers run the risk of incorrectly characterising their employees, thereby failing to give them the remuneration, rights and entitlements they’re entitled to. Similarly, changes to the definition of employment mean that a more complex analysis needs to be undertaken to ensure that independent contractors have been properly characterised.”
Certainly, the new definition of casual employment is a red flag for directors. Lyras says mischaracterising casual employees, particularly in large casual workforces, can result in significant underpayment claims and civil penalties. But there is a silver lining, she adds. “Directors can take comfort in the fact that the changes largely reinstate the traditional ‘multi-factor’ test, previously in place, that considers the totality of the employment relationship, which is well understood from a compliance perspective.”
Employees now also have the right to disconnect. Interestingly, despite the media attention it attracted, this doesn’t greatly faze these industrial relations practitioners. Bastick says it’s an operational issue and not a focus for directors. Polis, however, is less sanguine. “Directors should satisfy themselves that organisations are updating their existing work practices and policies to reflect these changes, monitoring employees’ work activity outside of agreed working hours, encouraging managers to respect employees’ boundaries and ensuring managers are trained in relation to employee rights.”
It’s a different story with the new regulatory and compliance regimes, particularly in relation to the transport industry and gig economy. Bastick’s blunt assessment is that directors in these two spaces should be prepared for greater regulation and an increased focus on their operational and commercial arrangements. “Those overseeing gig economy businesses will need to ensure that compliance frameworks are altered to meet the new requirements and that positive steps are taken to ensure risk management is reassessed and that their business complies with the new regulations.”
Polis is singing from the same hymn sheet. “The more stringent regulations will raise the bar for future risk-management, reporting and compliance requirements,” he says. “Directors will need to satisfy themselves that improved policies, processes, systems, controls, reconciliations, regular payroll top-ups, risk-management frameworks and reporting are in place to demonstrate adherence and compliance. They cannot set and forget.”
Directors on IR
Dr Eileen Doyle FAICD
Non-executive director at Santos, Airservices Australia and NextDC
“My experience as an executive and non-executive director covers a wide range of industries and business activities. The range of recent IR reforms will have a significant impact on businesses of all sizes and the prosperity of all Australians.
The stated benefits are about sustained employment, productivity and prosperity. In principle we all support that outcome, but this cannot be achieved if the business community is not more formally consulted about the impacts.
As I have learned over many years of industrial and contract negotiations, the only time there are sustained benefits is if there is a win-win for all parties. We need to get the balance right between employers and employees. In my view, we have had a litany of rushed legislation by governments over the years and all it does is continue to reduce our competitiveness in the world. We also have a worrying trend of ‘guilty until proven innocent’ for company officers.
In the end, risk and reward are linked, and individuals and companies will have a much lower risk appetite if they can’t see how they will be rewarded for taking a risk. This eats away at our prosperity as a country. It is hard to quantify the impact of an individual reform, but the cumulative effect will impact all of us.”
Fiona Balfour AM FAICD
Independent non-executive director at AirTrunk
“The IR legislation is regressive and this is concerning. It should be informed by people who have run businesses, but instead it seems to have been designed by people who haven’t run a P&L or a workforce, or people who understand risk. When the legislation gets tested, it’s going to result in some difficult debates, it will create work for lawyers and will negatively impact productivity.
Another issue is working from home [WFH], which is a good thing for individual contributors, but not all the time and not without suitable tools and checks and balances in place. Organisations need to have boundaries around WFH and work out how they will develop individuals, help build careers and invest in their corporate culture. Companies that do this well distinguish between working at home and managing your career.
Organisations with offices that offer a full suite of amenities — such as kitchens, arrival facilities and a modern working environment — are having a better time getting people back into the office and driving engagement.
We’ve had circumstances in recent years where organisations have been accused of wage theft. Payroll systems are some of the most difficult systems to deal with as they ultimately require the codification of complex awards and none of the recent changes are problem-solving in that area. Few realise that if a payroll system ‘underpays’, it probably also ‘overpays’.
Directors need to understand what is driving the complexity — go and read the relevant award. Of concern, recent changes are introducing award-like complexity to contractual arrangements and this further contributes to driving up costs and has a negative impact on productivity.”
Derek La Ferla FAICD
Chair of Foodbank WA, Chalice Mining and Green Peak Energy
“The first consequence is the level of complexity, which is likely to increase as the various changes are put in place. Companies are faced with numerous IR laws and the consequences of non- compliance, even if not intentional, are significant, both in a legal and reputational sense, with the primary responsibility for compliance resting with the officers of the company.
Continually adding to legislation to address issues as they arise, and as our working society and its norms evolve, is not the best approach. It would be better if legislators of all political persuasions spent time considering whether current laws are sufficient and, in reality, just need to be enforced in a more appropriate way. This would include informing companies of new or greater areas of focus. I worry we are adding to an ever-increasing compliance burden and the compliance ‘industry’ that grows from this.
One other consequence that is on my mind is the impact such legislation may have on productivity. We all agree with the principle of fair pay, but this principle also needs to be interlaced with productivity.
We need to remember Australia is operating in an internationally competitive environment and while we must, of course, protect and treat our workforce fairly, we needtoensurewedosoina manner that encourages enterprise and the highest levels of productivity. This then assures a more fully employed, better-trained and ultimately better-paid workforce.”
Frances-Anne Keeler GAICD
Non-executive director at Wine Australia
“I’m following with interest the developments on the right to disconnect. Research has shown time and again that employees are better able to focus and be more productive when they have the opportunity to rest and disconnect, while technological advancements have often blurred the lines between work and personal life.
A key issue from what I’ve read will be the definition of ‘reasonableness’ as this is likely to be subjective. The focus also appears to be on how reasonable the employee’s refusal to connect is. I hope navigating this legislation doesn’t distract boards from setting the tone for the right culture in the first place, a culture where executives don’t feel empowered to make unreasonable demands on their employees outside of work.”
This article first appeared under the headline 'On Your Side’ in the April 2024 issue of Company Director magazine.
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