Fair Work Ombudsman v Make Dough Enterprises (in liquidation)
[2024] FCA 1432
•12 December 2024
FEDERAL COURT OF AUSTRALIA
Fair Work Ombudsman v Make Dough Enterprises (in liquidation) [2024] FCA 1432
File number(s): TAD 16 of 2023 Judgment of: MCELWAINE J Date of judgment: 12 December 2024 Catchwords: INDUSTRIAL LAW-separate question determination-does s 557C of the Fair Work Act 2009 apply in proceedings brought against a responsible franchisor pursuant to s 588B-if so, how does it operate-question answered in the affirmative-operation explained Legislation: Corporations Act 2001 (Cth) s 500
Evidence Act 1995 (Cth) s 140(1)
Fair Work Act 2009 (Cth) ss 44, 45, 50, 323(1), 325(1), 535, 550, 557C, 558A, 588B, 558C, 564, 568, 712(3),
Fair Work Amendment (Protecting Vulnerable Workers) Act 2019 (Cth)
Federal Court of Australia Act 1976 (Cth) ss 21, 22, 23
Fair Work Regulations 2009 (Cth) r 3
Federal Court Rules 2011 (Cth) rr 15.01, 15.13, 30.01
Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017
Cases cited: Barclays Bank v Tom [1923] 1 KB 221
Commissioner of Police v Tanos (1958) 98 CLR 383; [1958] HCA 6
Fair Work Ombudsman v DTF World Square Pty Ltd (in liq) (No 3) [2023] FCA 201
Ghimire v Karriview Management Pty Ltd (No 2) [2019] FCA 1627
Hill v McKenzie Matterson Pty Ltd [2023] FedFamC2G 343
Ilumba Pty Ltd v Malouf [2019] FCA 2095
Insurance Exchange v Dooley (2000) 50 NSWLR 222; [2000] NSWCA 159
Mondelez Australia Pty Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union (2020) 271 CLR 495; [2020] HCA 29
Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65
Division: Fair Work Division Registry: Tasmania National Practice Area: Employment and Industrial Relations Number of paragraphs: 54 Date of hearing: 23 August 2024 Counsel for the Applicant: Mr M. Felman KC with Mr J. Zeeman Solicitor for the Applicant: Fair Work Ombudsman Counsel for the First Respondent: The First Respondent did not appear Counsel for the Second Respondent: The Second Respondent did not appear Counsel for the Third Respondent: The Third Respondent did not appear Counsel for the Fourth Respondent: Mr C. B. O’Grady KC with Mr A. Aleksov Solicitor for the Fourth Respondent: MST Lawyers ORDERS
TAD 16 of 2023 BETWEEN: FAIR WORK OMBUDSMAN
Applicant
AND: MAKE DOUGH ENTERPRISES PTY LTD (ACN 122 520 218)
First Respondent
JOHN VINCE PUGLISI
Second Respondent
LISA KAY PUGLISI
Third Respondent
BAKERS DELIGHT HOLDINGS LTD (ACN 122 520 218)
Fourth Respondent
ORDER MADE BY:
MCELWAINE J
DATE OF ORDER:
12 DECEMBER 2024
THE COURT ORDERS THAT:
1. The separate question be answered as follows:
In the circumstances set out in paragraphs [49] to [57], [80] to [81], [83] and [216] of the Statement of Claim and paragraphs 1 to 4 of the Reply, and paragraphs [49], [80] to [81], [83], [118] to [119], [216] and [225] of the Further Amended Defence of the fourth respondent, does s 557C(1) of the Fair Work Act 2009 (Cth) apply as against the fourth respondent, and if so, how?”
Answer: Yes. Section 557C of the Fair Work Act 2009 applies to establish the contravention referred to at s 588B (1)(a) and it is open to a responsible franchisor to discharge the burden of disproving the relevant allegations.
2. The case management of the proceeding is adjourned to a date to be fixed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
MCELWAINE J
These reasons determine a separate question in this proceeding. The Fair Work Ombudsman contends that Make Dough Enterprises Pty Ltd (in liq), as the employer and franchisee of Bakers Delight Holdings Ltd (BDH), contravened multiple provisions of the Fair Work Act 2009 (Cth) (FW Act), some of which concern the failure to keep and maintain employee records as required by ss 535 and 536 and the Fair Work Regulations 2009 (Cth), r 3. The Ombudsman seeks various remedies including declarations, the rectification of underpayments and civil penalties. The directors of Make Dough are also joined as parties.
In these reasons all references to statutory provisions are to the FW Act, unless stated otherwise.
Section 558B(1) makes a responsible franchisor liable for certain contraventions by a franchisee where the elements set out in ss 558B(1)(a)-(d) are met and the exception at s 558B(3) is not satisfied. The first element at s 558B(1)(a) is that an employer who is a franchisee entity contravenes a civil remedy provision referred to in s558B(7).
The separate question arises in this proceeding because the Ombudsman relies on s 557C(1), which operates to cast on an employer, in a proceeding relating to a contravention of certain civil remedy provisions, a reverse onus to disprove an allegation that is made. Here the employer is in liquidation and there is no prospect that it will actively participate in the trial. The employer was a franchisee entity. The difficult issue is whether s 557C operates against the responsible franchisor where the fact of contravention is a necessary element of liability pursuant to s 558B and, if so, whether it is open to the responsible franchisor to adduce evidence to discharge the onus?
Each provision was introduced by amendments made pursuant to the Fair Work Amendment (Protecting Vulnerable Workers) Act 2019 (Cth) (Amendment Act), but s 557C was not included in the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (Amendment Bill) as drafted and first read. It was introduced through debate in the Senate, it would seem as a policy compromise between the opposition and minor parties. No attention was paid at the time to the interaction of s 557C and the responsible franchisor liability provisions at ss 558A to 558C.
Justice Edelman has observed in the context of ascertaining Parliamentary intent that:
Words of a statute are not a secret code for lawyers. They are enacted to be read and understood by reasonable, informed people using their everyday tools of language.
Mondelez Australia Pty Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union (2020) 271 CLR 495; [2020] HCA 29 at [98].
A difficulty that arises in this proceeding is that Parliament did not advert to the interrelationship between s 557C and s 558B(1)(a) where the liability of a responsible franchisor only arises if the franchisee contravenes certain types of civil remedy provisions. In that circumstance, how should such reasonable people interpret the provisions?
I have received considerable assistance from the able arguments of counsel for the parties: Mr M Felman KC with Mr J Zeeman for the Ombudsman and Mr C O’Grady KC with Mr A Aleksov for BDH.
For the following reasons, I accept the construction submissions of the Ombudsman. The reverse onus at s 557C applies such that the Ombudsman may rely on it in the proceeding against BDH pursuant to s 558B. Despite the text of s 557C, which speaks only to “the employer”, in my view the statutory scheme does not operate to prevent BDH from mounting a case to discharge the onus that is cast on an employer.
BACKGROUND AND THE NEED FOR DETERMINATION OF A SEPARATE QUESTION
Make Dough operated a retail bakery business from three locations in Tasmania under the Bakers Delight brand subject to franchise agreements with BDH. Make Dough was placed into liquidation on 22 February 2023. On 7 July 2023, I ordered that the Ombudsman have leave nunc pro tunc pursuant to s 500(2) of the Corporations Act 2001 (Cth), to commence and to proceed against Make Dough. The liquidators, understandably, have not engaged with the proceeding. The directors have not actively participated in the separate question.
The FWO alleges that Make Dough:
(a)breached the record keeping obligations in the FW Act and Regulations;
(b)provided false information to a Fair Work Inspector and hindered or obstructed a Fair Work Inspector in the exercise of his duties;
(c)contravened a substantial number of clauses in the Bakers Delight (TAS) Enterprise Agreement 2012, thereby breaching s 50;
(d)failed to comply with various annual leave obligations and carers’ leave obligations in contravention of the National Employment Standards (thereby contravening s 44(1));
(e)breached s 323(1), by failing to pay employees in full in relation to the performance of work and by deducting amounts payable for annual leave on termination of employment;
(f)breached s 325(1), by requiring employees to pay a bond for a uniform on commencement of employment; and
(g)breached s 712(3), by failing to comply with two notices to produce records or documents.
The pleaded case is very extensively set out in the form of the Ombudsman’s Statement of Claim comprising 181 pages dated 28 June 2023. The Ombudsman pleads reliance on s 557C for underpayment contraventions involving multiple employees of Make Dough. The allegation is that it was required pursuant to s 535(1) to make and keep records in accordance with the Regulations and failed to comply with that requirement. The failures are particularised at paragraphs [49] – [57]. They concern many employees. Broadly, they relate to a failure to make or keep records of full-time or part-time employment, of remuneration paid, of the hours worked, of the entitlements to be paid overtime and entitlements to leave. The Ombudsman directly pleads at paragraph [81] that, by operation of s 557C, Make Dough has the burden of disproving each of the contraventions, to the extent that they occurred on or after 15 September 2017, that are set out at paragraphs [82] – [141] and [143] – [155].
Two examples of contravention concern Tanika Koning and Ashton Burk about which BDH has made limited admissions in its Further Amended Defence dated 17 June 2024. The admissions were made to ensure that the separate question was not hypothetical. The Ombudsman pleads that Tanika Koning was employed as a part-time sales assistant between 2 January 2019 and 19 February 2020, that Make Dough was required to but failed to keep records relating to her within that period relating to the rate of remuneration and the actual hours worked. BDH admits these allegations. For Ashton Burk, the contention is that he was employed as a part-time sales associate between 28 August 2020 and 14 October 2020, worked some overtime hours within that period and Make Dough was required to, but failed to keep records relating to whether his employment was full-time or part-time, his rate of remuneration, the actual hours worked, the number of overtime hours worked in each day and the loading or penalty rate that was payable to him for overtime hours. BDH admits these allegations.
BDH denies all other relevant allegations relating to the record keeping obligations of Make Dough.
The large issue that concerns the Ombudsman and BDH is who carries the onus at trial of establishing a contravention of one or more of the civil remedy provisions at s 557C in the proceeding against BDH. That question fundamentally affects the steps required to prepare the respective cases for trial, if it is the case that across the multiple contraventions that are alleged against Make Dough, it was required to but failed to keep the statutory records.
On 1 July 2024, I ordered pursuant to r 30.01 of the Federal Court Rules 2011 (Cth) that the following separate question be determined:
In the circumstances set out in paragraphs [49] to [57], [80] to [81], [83] and [216] of the Statement of Claim and paragraphs 1 to 4 of the Reply, and paragraphs [49], [80] to [81], [83], [118] to [119], [216] and [225] of the Further Amended Defence of the fourth respondent, does s 557C(1) of the Fair Work Act 2009 (Cth) apply as against the fourth respondent, and if so, how?”
(Note: the parties agree that this question does not deal with the compensation orders that can be made pursuant to s 545 of the Fair Work Act 2009 (Cth))”
As I explain, the answer is that it does, and it is open to BDH to assume the burden that is cast onto Make Dough.
THE STATUTORY SCHEME
Section 557C relevantly provides:
Presumption where records not provided (1) If:
(a)in proceedings relating to a contravention by an employer of a civil remedy provision referred to in subsection (3), an applicant makes an allegation in relation to a matter; and
(b) the employer was required:
(i) by subsection 535(1) or (2) to make and keep a record; or
(ii)by regulations made for the purposes of subsection 535(3) to make available for inspection a record; or
(iii) by subsection 536(1) or (2) to give a pay slip;
in relation to the matter; and
(c) the employer failed to comply with the requirement;
the employer has the burden of disproving the allegation.
(2)Subsection (1) does not apply if the employer provides a reasonable excuse as to why there has not been compliance with subsection 557C(1)(b).
There is a list of the civil remedy provisions at subsection (3) which includes s 44 (contraventions of the National Employment Standards), s 45 (contraventions of modern awards) and s 50 (contraventions of enterprise agreements).
As I have noted, s 557C was introduced by the Amendment Act with effect from 15 September 2017, at the same time as Division 4A was inserted. The first provision in that Division is s 558A which defines a franchisee entity and a responsible franchisor entity. It provides:
Meaning of franchisee entity and responsible franchisor
(1) A person is a franchisee entity of a franchise if:
(a)the person is a franchisee (including a subfranchisee) in relation to the franchise; and
(b)the business conducted by the person under the franchise is substantially or materially associated with intellectual property relating to the franchise.
(2) A person is a responsible franchisor for a franchisee entity of a franchise if:
(a)the person is a franchisor (including a subfranchisor) in relation to the franchise; and
(b)the person has a significant degree of influence or control over the franchisee entity's affairs.
It is common ground that BDH at the relevant times was the operator of the Bakers Delight franchise chain and that it and Make Dough were parties to a number of franchise agreements in writing, entered into on various dates between 2008 and 2020, for the operation by Make Dough of stores at Eastlands, Kingston and Lindisfarne in Tasmania. There is no dispute that for each of those stores the business conducted by Make Dough was substantially or materially associated with the intellectual property of BDH. What is in issue is whether BDH had a significant degree of influence or control over the affairs of Make Dough. On the pleaded case of BDH, for that part of the definition to apply, there must be an ability to significantly influence or control the actual conduct of the franchisee in relation to the matter in respect of which a contravention of the FW Act is alleged. Further, on that question, contractual rights are not conclusive. BDH says that it did not have significant influence or control over Make Dough in respect of the matters alleged.
Section 588B enacts four matters that must be established to make a responsible franchisor responsible for contraventions of a franchisee and where one is not concerned with subsidiary corporations.
Section 558B(1) relevantly provides:
558B Responsibility of responsible franchisor entities and holding companies for certain contraventions
Responsible franchisor entities
(1) A person contravenes this subsection if:
(a)an employer who is a franchisee entity of a franchise contravenes a civil remedy provision referred to in subsection (7); and
(b) the person is a responsible franchisor for the franchisee entity; and
(c)the contravention by the franchisee entity occurs in the franchisee’s capacity as a franchisee entity; and
(d)either
(i)the responsible franchisor or an officer (within the meaning of the Corporations Act 2001) of the responsible franchisor knew or reasonably could be expected to have known that the contravention by the franchisee entity would occur; or
(ii)at the time of the contravention by the franchisee entity, the responsible franchisor or an officer (within the meaning of the Corporations Act 2001) of the responsible franchisor knew or could reasonably be expected to have known that a contravention by the franchisee entity of the same or a similar character was likely to occur.
Subsection (3) provides for an exception which speaks to taking reasonable steps to prevent a contravention, when read with the list of matters at subsections (4), (5) and (6). It is important to set out these provisions. Subsection (3) provides:
(3)A person does not contravene subsection (1) or (2) if, as at the time of the contravention referred to in paragraph (1)(a) or (2)(b), the person had taken reasonable steps to prevent a contravention by the franchisee entity or subsidiary of the same or a similar character.
A list of inclusive matters that may be considered in resolving that question (in addition to “all relevant matters”) is set out at subsection (4) which provides:
(4)For the purposes of subsection (3), in determining whether a person took reasonable steps to prevent a contravention by a franchisee entity or subsidiary (the contravening employer) of the same or a similar character, a court may have regard to all relevant matters, including the following:
(a)the size and resources of the franchise or body corporate (as the case may be);
(b)the extent to which the person had the ability to influence or control the contravening employer's conduct in relation to the contravention referred to in paragraph (1)(a) or (2)(b) or a contravention of the same or a similar character;
(c)any action the person took directed towards ensuring that the contravening employer had a reasonable knowledge and understanding of the requirements under the applicable provisions referred to in subsection (7);
(d)the person's arrangements (if any) for assessing the contravening employer's compliance with the applicable provisions referred to in subsection (7);
(e)the person's arrangements (if any) for receiving and addressing possible complaints about alleged underpayments or other alleged contraventions of this Act within:
(i) the franchise; or
(ii)the body corporate or any subsidiary (within the meaning of the Corporations Act 2001 ) of the body corporate;
as the case may be;
(f)the extent to which the person's arrangements (whether legal or otherwise) with the contravening employer encourage or require the contravening employer to comply with this Act or any other workplace law.
This list does not limit subsection (3): s 588B(5). A finding of contravention by a franchisee is not a necessary element of the liability of a responsible franchisor as provided at subsection (6):
To avoid doubt, a reference in paragraph (1)(a) or (2)(b) to a contravention by a franchisee entity or subsidiary includes any contravention whether or not an order has been sought or made against the franchisee entity or subsidiary under Division 2 for the contravention.
Subsection (7) lists the relevant civil remedy provisions, including contravention of the National Employment Standards, modern awards, and enterprise agreements. A responsible franchisor has a statutory right of recovery from the franchisee for amounts paid to an employee pursuant to an order made under these provisions: s 588C.
The issue for determination flows from the reference only to the employer at s 557C and the absence of any cross-referencing link to the liability of a responsible franchisor at s 558B, which gives rise to two difficulties. Does the reverse burden apply to the responsible franchisor and, if so, is it open to it to adduce evidence to discharge it? Each difficulty is brought into sharp focus in this proceeding because the franchisee is in liquidation and the liquidators have no interest in being concerned to discharge the onus of proof.
THE SUBMISSIONS
Mr Felman focuses on the nature of the secondary liability of a responsible franchisor as contingent on a finding of primary contravention by a franchisee. The attribution of secondary liability is justified by involvement in the primary contravention. Section 550 is the general accessory liability provision in familiar form which speaks (inter alia) to aiding, abetting, counselling, or procuring a contravention, inducing a contravention, or being directly or indirectly knowingly concerned in or a party to a contravention. The decision in Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65 is often referenced as the primary authority on what knowledge is required to make the accessory liable under provisions of this type.
Section 588B is to be construed as supplementary to s 550. It creates a separate pathway to establish the secondary liability of a responsible franchisor. The provisions share the common concept of “involvement in” a contravention. Each is predicated on a finding of primary contravention. Where that finding is made, the focus shifts to the relationship between the responsible franchisor and the franchisee.
To establish the primary contravention, where there has been a failure to keep the prescribed records, the Ombudsman is entitled to rely on the reverse onus provision. Textually, there is nothing in the scheme of the FW Act which displaces the operation of that provision in a proceeding brought against a responsible franchisor. It would be anomalous if, in a proceeding brought against the franchisee and the responsible franchisor, the onus of proof shifted as between each. To the extent that Hill v McKenzie Matterson Pty Ltd [2023] FedFamC2G 343 at [132] decides otherwise, it is wrong. Once a contravention by the employer is established, there is nothing in the statutory scheme that requires that fact be established again with a different onus against the responsible franchisor.
The Ombudsman’s preferred construction is consistent with the underlying statutory purpose of each provision and avoids the risk of potentially inconsistent contravention findings. The Amendment Act was introduced for the purpose of protecting vulnerable workers from exploitation. As observed by Katzmann J in Fair Work Ombudsman v DTF World Square Pty Ltd (in liq) (No 3) [2023] FCA 201 at [91], s 557C “reflects a legislative policy that an employer should not be able to take advantage of its failure to make or keep certain records to defeat a claim that it has underpaid its employees”. See also Colvin J in Ghimire v Karriview Management Pty Ltd (No 2) [2019] FCA 1627 at [11] and [14]. This is confirmed by the Explanatory Memorandum to the Amendment Bill at [36]-[37], the Second Reading Speech to the Bill, the Senate Debate on 4 September 2017 and the Senate Education and Employment References Committee Report: A National Disgrace: The Exploitation of Temporary Work Visa Holders, March 2016 (which focused on the 7-Eleven Franchise Network). Emphasis is placed on paragraph [8.276] where the Committee observed:
7-Eleven stated that it is working to rid itself of rogue franchisees that do not meet the standards that 7-Eleven and the wider community expect. The committee agrees it is vitally important to stamp out the fabrication of records and deliberate underpayment of workers that the vast majority of franchisees engaged in. The committee reiterates that it in no way condones the abhorrent behaviour of so many franchisees.
In contrast, Mr O’Grady submits that, on one view, the construction urged by the Ombudsman may result in the making of orders against a responsible franchisor, whilst denying to it the opportunity of adducing evidence to discharge the burden borne by the employer.
The text and operation of the provisions is clear. Contravention of a relevant civil remedy provision is the first element that must be established in a proceeding against the responsible franchisor. The employer need not be a party to the proceeding for that to be established: s 558B(6). Thus, proof of contravention must be approached in the same way whether or not the employer is a party to the proceeding. Were it otherwise, there is scope for a variable operation of the provisions and clear words are required to support that result. Section 557C is silent in its operation in proceedings against a responsible franchisor, which points strongly to the conclusion that the usual burden of an applicant applies: Evidence Act 1995 (Cth), s 140(1).
In the drafting of s 557C, a deliberate choice was made to focus the reverse onus only upon the employer. It is only the employer that may engage the reasonable excuse carveout at s 557C(2), which is explicit recognition of the potentially harsh consequence that may flow from reversal of the onus of proof. It is most unlikely that Parliament, having recognised that consequence, did not then create the same exception for a responsible franchisor. Parliament must be taken to have intended to confine the reverse onus to the employer as the entity with the obligation to make and maintain the relevant employment records. It is not the obligation of a responsible franchisor to make and keep the employment records for a franchisee employer. It is onerous to impose a reverse onus on a responsible franchisor when, as illustrated by this case, the alleged breaches concern multiple employees, and the allegation is that the records were not kept. The statutory scheme does not explicitly, or by necessary implication, achieve that result.
Section 557C operates on two levels. It recognises that an employee, or as in this case the Ombudsman, is likely to face practical difficulties in establishing facts relevant to the asserted contraventions where the employer is in default of its record keeping obligations. The reverse onus operates to prevent that injustice. Similarly, the provision is an incentive to ensure employer compliance. In each case it is telling that these matters do not apply directly to a responsible franchisor. This recognises the statutory division of responsibility in that the responsible franchisor is not obliged to maintain the employment records.
Parliament did direct attention to the potential liability of the responsible franchisor by enacting the knowledge requirements at subsection 1(d) and the catchall reasonable steps to prevent a contravention carveout at subsection (3). In doing so, Parliament has recognised that responsible franchisors who have taken reasonable steps to understand the way a franchisee is attending to recordkeeping will not incur liability. That submission is further developed:
It can thus be seen that Parliament has considered the position of a responsible franchisor with respect to employee records, and determined that, unlike an employer, a responsible franchisor is not required to do any more than to take reasonable steps to prevent a contravention of the employer’s duty to make records.
The risk of inconsistent findings is no more than the application of different rules of proof to different parties, and in pursuit of different legislative purposes.
RESOLUTION
Commencing with the statutory text, whilst section 557C is only concerned with casting the burden of disproving allegations made upon the employer, it does not follow that it has no effect in a proceeding against a responsible franchisor for secondary liability incurred by operation of s 588B. It is not correct to compartmentalise and confine s 557C in its operation only to allegations made in a proceeding against the employer. To do so is to ignore that the first element of liability of the responsible franchisor is derivative on establishing a contravention by a franchisee. It matters not that an order has been sought or made against the franchisee: s 588B(6). These provisions focus attention on the fact of contravention by the employer who is a franchisee and where establishing liability, when employment records have not been made and maintained, is facilitated by the reverse onus.
The statutory text does not require different modes of proof for the same contravention. An employer has either contravened a relevant civil remedy provision or not. Where contravention is established, the first necessary element to attach secondary liability to the responsible franchisor is satisfied. There is no textual requirement to prove the same contravention once in the primary liability proceeding and again in the secondary liability proceeding. Justice Katzmann, albeit when considering the general accessory liability provision at s 550, observed in DTF World Square at [267]:
It is common ground that s 557C has no role to play here. Contrary to the submission advanced on behalf of Ms Handoko and Ms Parmenas, however, it does not follow that in order to prove her case against them the Ombudsman must “positively prove” each element of the relevant contravention and their knowledge of each element without the benefit of the reverse onus. The submission must be rejected. The sole question here is the involvement of Ms Handoko and Ms Parmenas in the Employers’ contraventions, not whether the contraventions occurred. That question has already been decided.
In my view that reasoning applies a fortiori to the liability of the responsible franchisor. There is no requirement to discharge the burden of proof twice in proceedings against a responsible franchisor where s 557C applies.
If the responsible franchisor was prevented from adducing evidence to discharge the burden of the employer that may have been a strong basis to conclude differently. Why is explained by Dixon CJ and Webb J in Commissioner of Police v Tanos (1958) 98 CLR 383; [1958] HCA 6, a case which concerned ex parte declarations about disorderly houses. At 395 their Honour’s referenced the:
…deep-rooted principle of the law that before anyone can be punished or prejudiced in his person or property by any judicial or quasi-judicial proceeding he must be afforded an adequate opportunity of being heard.
And continued at 396 that the rule may be displaced by:
…a sufficient indication of an intention of the legislature to the contrary. Such an intention is not to be assumed nor is it to be spelled out from indirect references, uncertain inferences or equivocal considerations. The intention must satisfactorily appear from express words of plain intendment.
The provisions do not manifest an intention to prevent the responsible franchisor from assuming the burden of the employer. Section 557C is concerned only with the burden of proof of the employer. It says nothing about how that burden may be discharged or, in a proceeding against the responsible franchisor, by whom. The responsible franchisor has all the rights of a party to the proceeding. The conferral of jurisdiction on this Court by s 562 in relation to any matter under the FW Act, does not limit the general powers at ss 21, 22 or 23 of the Federal Court of Australia Act 1976 (Cth) (FCA Act): s 564. There is a similar provision that applies to the jurisdiction of the Federal Circuit and Family Court of Australia (Division 2) at s 568. Section 23 of the FCA Act is a general conferral of power to make all orders “the Court thinks appropriate”, which is a broad power to make orders which are just and efficient in the administration of justice: Ilumba Pty Ltd v Malouf [2019] FCA 2095 at [15], Derrington J.
In multi-party proceedings it is elementary that respondents with the same or similar interests may each contest the applicant’s claim. A close analogy for present purposes is the third-party procedure, in this Court by a cross-claim commenced by a respondent against a cross-respondent by invoking the procedure at r 15.01 of the Rules. The liability of a third-party (cross-respondent) is derivative. A party to a cross-claim may apply for an order permitting a cross-respondent to defend the claim of the applicant, or any other cross-claim, either alone or with another party: r 15.13. It is common for orders to be made in cross-claims to the effect that a cross-respondent has the right to cross-examine the applicant’s witnesses, to call evidence and to make submissions for the purpose of defending the primary claim. The whole point of the procedure is to bind the third-party to the outcome of the principal claim and to ensure that the third-party has full participation rights: Barclays Bank v Tom [1923] 1 KB 221 at 223-224, Scrutton LJ.
The third-party is entitled to “full procedural fairness” in defence of the primary claim: Insurance Exchange v Dooley (2000) 50 NSWLR 222; [2000] NSWCA 159 at [16], Handley JA.
Procedural fairness underlies these fundamental principles, which in my view are equally applicable in a proceeding against a responsible franchisor, whether or not the employer is joined as a party or actively participates. So understood, s 557C speaks only to the burden of the employer which is no reason to conclude that it is inapplicable in a proceeding against the responsible franchisor when the first element of derivative liability is the same contravention. Further, there is no textual support for concluding that the burden imposed by s 557C is only capable of being discharged by the employer in determining the derivative liability of the responsible franchisor. Very clear words would be required to prejudice the responsible franchisor in that way. Parliament, in the expression of intent, did not choose that pathway.
Dealing next with the statutory context and history, s 557C was not proposed when the Amendment Bill was drafted and read for a second time. Part 2 of the Amendment Bill as drafted proposed the insertion of ss 558A, 558B and 558C. The Explanatory Memorandum in the Outline focused on the purpose of the new provisions as:
The Bill will introduce new provisions to hold franchisors and holding companies responsible for contraventions of the Fair Work Act, if they knew or could reasonably have been expected to have known the contraventions would occur in their business networks and failed to take reasonable steps to manage the risk.
Clause [55] simply noted that contravention by a franchisee entity was a trigger mechanism for application of the new provisions. The evolution of s 557C may be traced to debate in the Senate on 4 September 2017, when it was proposed by Senator Cameron from the opposition as an amendment to the Amendment Bill and drafted as a form of compromise with Senator Xenophon. The focus of the debate as recorded in Hansard (pages 6090-6097) was the importance of the employer’s obligation to provide payslips to an employee detailing the hours worked and corresponding rates of pay. Senator Cameron described s 557C as:
[A]nother protection for vulnerable workers, by having a reverse onus of proof. In actually bringing a case against a powerful employer—an employer who has all the facts, an employer who may have been exploiting the worker—the worker may have some difficulties if they don't have a pay slip. So, the employer has an obligation under law to provide the pay slip, and you can't have noncompliance with legal obligations making it harder for a vulnerable worker, a worker in an exposed position, to actually make a claim for their rights under the law and their rights to get paid for what they've worked.
The Senate debate did not so much concern in the justification for the reverse onus but its dis-application if the employer provided a reasonable excuse. The government initially opposed the entire provision, but that position altered with the introduction of the reasonable excuse amendment, which Senator Cash described as going “part of the way to addressing the concerns” of the government (6094). After further debate, Senator Cash acknowledged that the amendments had majority support of the Senate, and for that reason no division was called for, and the amendment was agreed to (6097).
The legislative history does not reveal an intent to confine the reverse onus only to proceedings against an employer. Parliament simply did not address the interplay between the reverse onus and first requirement to establish the derivative liability of the responsible franchisor. It may be inferred that by requiring a contravention by the employer as the first element of the derivative liability of a responsible franchisor, it was assumed that the proof mechanism would apply.
The construction of the Ombudsman is supported by other considerations. It avoids the possibility of inconsistent findings on the same factual question. It harmoniously connects the provisions which have as their core purpose the protection of vulnerable workers from exploitation where the employer fails in the obligation to keep employment records, which makes proof of underpayment and other types of exploitation difficult: Ghimire at [11]-[14].
The contrary reasoning in McKenzie Matterson at [132] was with respect wrong.
For these reasons, I conclude that that it is open to the Ombudsman in this proceeding to plead the relevant contraventions required pursuant to s 557C and thus engage the reverse onus of disproving those allegations against BDH. In turn, BDH can assume the burden of disproving those allegations even though it is not the employer. The separate question is answered accordingly. I adjourn the proceeding to a date to be fixed for further case management.
I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McElwaine. Associate:
Dated: 12 December 2024
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