Fair Work Ombudsman Inquiry into Council Supply Chains — What You Need to Know

3 July 2018

On 25 June 2018, the Fair Work Ombudsman released its findings of its inquiry into the procurement of security services by local government (“the Inquiry”). The Inquiry examined the labour procurement arrangements relating to the engagement of security services by 23 local councils across all states and the Northern Territory.

The Inquiry identified non-compliance with workplace laws in the supply chains of 14 of the 23 councils (61 percent), with at least one instance of non-compliance identified in each state. Fair Work Ombudsman Natalie James identified that the report highlights the important role that organisations at the top of labour supply chains can play in influencing workplace practices and promoting compliance with workplace laws.

Why are we talking about Commonwealth laws, when South Australian councils fall under the state industrial relations system? Indeed, why was the Fair Work Ombudsman conducting an inquiry into local government procurement practices?

While councils fall under the various State industrial relations systems, in almost all cases the councils’ principal contractors, their sub-contractors, and their employees, will fall under the Commonwealth industrial relations system, and therefore under the jurisdiction of the Fair Work Ombudsman.

The Fair Work Ombudsman has made a specific object in recent times of inquiring into labour supply chains, with recent inquiries into the cleaning industry and trolley collection putting major companies  such  as Woolworths  and  Coles  in  the  firing  line  for  their  labour  supply  chain procurement practices.

But again, how does this impact on councils?

First, and foremost, it can impact on a council’s reputation. There are clear community expectations that organisations, including councils, are responsible for ensuring that the people performing work within their supply chain networks are being treated fairly and lawfully. Unless councils carefully manage these tensions and monitor arrangements, they risk being seen to have contributed to underpayment of workers ‘down the chain’ just as much as the principal contractors, with damage to their reputation and standing in the community.

Secondly, it is not just employers who could be held liable for breaches such as underpayments occurring in a supply chain. In certain circumstances, councils themselves may be held legally responsible when their contractors or subcontractors are not complying with the law.

Under Section 550 of the Fair Work Act 2009 (Cth), any person or organisation who is ‘knowingly involved’ in a workplace contravention may be held liable, meaning all participants within a labour supply chain are exposed to potential penalties if they turn a blind eye to any workplace breaches.

A person is ‘involved’ in a contravention if they:

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

So, what should councils be doing to protect their best interests? The Fair Work Ombudsman, in their report, made a number of recommendations, which we have summarised and supplemented below. In short, councils should:

• enable full visibility and monitoring of the labour supply chain;
• reflect best practice as contained in the Fair Works Ombudsman’s Guides on contracting labour and supply chains;
• include a specific reference that requires principal contractors and subcontractors to comply with the Fair Work Act 2009 (Cth);
• require principal contractors seek written permission to subcontract work;
• require both principal contractors and subcontractors to regularly report on their compliance with the Fair Work Act 2009 (Cth);
• require principal contractors to provide written confirmation (for example a statutory declaration) with each claim for payment that all subcontractors and employees have been paid and that they are in compliance with all laws, including the Fair Work Act 2009 (Cth);
• ensure that the “schedule of fees” contained in contracting agreements be indexed against the applicable award rates effective every 1 July;
• require principal contractors and subcontractors to undertake training on the provisions and obligations of the relevant awards applicable to the industry;
• disclose the input items associated with the total cost of an employee;
• ensure that the amounts paid in their contracts are sufficient to allow both  principal contractors and subcontractors to cover employee entitlements;
• require all principal contractors and subcontractors to sign up to the Fair Work Ombudsman’s My Account service and provide evidence of their knowledge of the wages required to be paid under the relevant industrial instrument including any applicable penalties for weekends, public holidays or overtime; and
• require the principal contractors to provide evidence that any subcontractors are aware of the distinction between contracts of employment and contracts for servi

Contact us if your council needs assistance with management of workplace obligations, including management of principal contractors and sub-contractors.