Fair Work Ombudsman to work with local councils to improve management of security supply chains

25 June 2018

The Fair Work Ombudsman has today released the findings of its Inquiry into the procurement of security services by local government, highlighting an opportunity for councils to work with the regulator to improve supply chain governance efforts.

The Inquiry was commenced following industry concerns and intelligence that security employees were being underpaid in the local government sector.

Co-designed with the Australian Security Industry Association Ltd and United Voice, 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 first phase of the Inquiry involved communication and education activities aimed at ensuring that councils throughout Australia, particularly those officers with responsibility for procurement, understood the relevant obligations under the Fair Work Act.

Fair Work Inspectors then conducted site visits; interviewed council procurement officials, contractors and workers; and assessed records relating to more than 400 employees covering a one-month sample period.

The Inquiry identified non-compliance with workplace laws in the supply chains of 14 (61 per cent) of the 23 councils, with breaches primarily relating to underpayment of minimum award rates as well as under- or non-payment of applicable penalty rates and overtime.

At least one instance of non-compliance was identified in each state. No instances of non-compliance were found in the Northern Territory, where the majority of councils audited directly employed security workers.

Fair Work Ombudsman Natalie James says 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.

“This Inquiry report is the latest in a series of activities in which my agency has shone the light on issues of non-compliance with workplace laws within labour supply chains,” Ms James says.

“I am pleased that throughout this Inquiry we were able to meaningfully engage with councils, local government associations and industry bodies to provide education around best practice supply chain governance and identify issues that need to be addressed.

“The findings reinforce something the Fair Work Ombudsman has been warning businesses about for some time now: a lack of oversight and accountability on the part of organisations at the top of the supply chain, in this case local councils, can play a significant role in creating conditions that give rise to non-compliance by contractors further down the chain.”

“In this case, we found that an absence of any proactive governance measures or real-time compliance auditing by councils of the contractors they engaged to provide security services meant little was being done to ensure that contractors were complying with workplace laws and paying workers correctly.

“There are clear community expectations that organisations be responsible for ensuring that the people performing work within their supply chain networks are being treated fairly and lawfully, and I expect that local councils will take this on board when considering the issues raised by this Inquiry.”

The Inquiry found that the ‘further away’ a business was from the council in the supply chain, the greater the levels of non-compliance: 63 per cent of subcontractors were found to be non-compliant compared to 42 per cent of principal contractors, who had a direct relationship with the council.

The observation reaffirms findings of previous FWO activities that have examined supply chains in high risk labour markets such as trolley collection and cleaning, with successive inquiries revealing a correlation between multiple levels of subcontracting and workplace breaches.

In many cases, the Inquiry found that contracts did not include a reference to an obligation for principal contractors to seek permission from the relevant council before subcontracting, and the Inquiry identified instances where principal contractors were found to be subcontracting without the knowledge or consent of the councils.

In response to the breaches identified by the Inquiry, the Fair Work Ombudsman issued 26 formal cautions, 15 compliance notices and four infringement notices to non-compliant contractors and subcontractors. A total of $72,250 was recovered for underpaid workers.

The Fair Work Ombudsman also commenced Federal Circuit Court proceedings against Gold Coast security company VIP Security Services Pty Ltd (now in liquidation) for allegedly taking unlawful adverse action and underpaying three employees almost $16,000, and entered into an Enforceable Undertaking with Melnor Security Services Pty Ltd after the company underpaid ten security guards almost $6000.

Ms James is urging both councils and security companies to take concrete steps to ensure that security officers performing work for local councils were receiving their lawful entitlements, emphasising that her agency was always on hand to provide assistance with workplace compliance.

The Inquiry report sets out a series of recommendations for councils and contractors aimed at improving compliance at all levels of the supply chain.

“While it is the primary responsibility of the employer to ensure compliance with workplace laws, it is clear that councils could – and should – be doing more to keep tabs on what is going on in their security contracting networks,” Ms James says.

“We’re recommending that local councils amend their security services tender documents to reflect best practice on contracting labour and ensure that the amounts paid in their contracts are sufficient for contractors and subcontractors to cover employee entitlements.

“We also expect that councils are proactive in monitoring their security supply chains, including by requiring contractors to regularly report on their compliance with their workplace obligations.

“Beyond such measures being in line with community expectations, councils should note that it is not just employers who can 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, 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.

The Fair Work Ombudsman is also calling on principal contractors and subcontractors to take action to ensure their businesses are compliant, including by reviewing and revising all practices to ensure their workers are provided their due entitlements, seeking independent professional advice prior to entering into an agreement with councils, and signing up to the Fair Work Ombudsman’s My Account service to keep up to date with their obligations.

Ms James says that to ensure accountability, her agency will continue to monitor to check the issues identified in the report and may conduct future inquires.

“We welcome cooperation from local councils, contractors and industry bodies to address the compliance and governance issues identified by this Inquiry and work with us make improvements going forward,” Ms James says.

The Fair Work Ombudsman will continue to actively engage with councils and the security industry to promote improved contracting and workplace practices.

Ms James says that promoting workplace compliance within labour supply chains remains an ongoing focus for the Fair Work Ombudsman.

In recent years the Fair Work Ombudsman has conducted inquiries into labour procurement arrangements of the Baiada Groupprocurement of housekeepers by four and five-star hotel groups and Woolworths’ trolley collection and cleaning services procurement, resulting in partnerships with a number of businesses aimed at improving compliance in their networks.

A suite of resources to assist businesses and other organisations monitor and manage their contract arrangements is available at www.fairwork.gov.au/supplychain.

The agency has also been working with key industry participants as part of the Cleaning Accountability Frameworkexternal-icon.png, and industry-led initiative which promotes the adoption of best practice throughout the cleaning supply chain to improve labour and cleaning standards in Australia.

Outside of this Inquiry, the security industry has been an area of focus for the Fair Work Ombudsman over several years, with the industry over-represented in requests for assistance received.

The sector consistently represents more than 2 per cent of disputes, despite accounting for only 0.5 per cent of total employment and 0.4 per cent of businesses in Australia.

In a recent example, the Federal Court penalised Perth security company Sureguard Security Pty Ltd more than $80,000 after a Fair Work Ombudsman investigation found the company had underpaid 22 security guards.

“Security guards carry out physically demanding work at often unsociable hours, and sometimes at risk to their personal safety. It is not acceptable that these workers might also have to contend with being underpaid,” Ms James says.

“There is a role for all parties – councils, contractors, employer and employee organisations and my agency – to ensure that security guards performing work for local councils are being treated fairly.

“We will be continuing to shine a light on this issue and will work with any organisation that is committed to stamping out exploitation in their networks.”

Employers and employees can visit www.fairwork.gov.au or call the Fair Work Infoline on 13 13 94 for free advice and assistance about their rights and obligations in the workplace.  A free interpreter service is available on 13 14 50.  

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Read the Inquiry into the procurement of security services by local governments 

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