One key question for the inquiry was whether any of the supermarkets was involved in supply chain non-compliance.
Section 550 of the Act provides that a person who is ‘knowingly involved in’ a contravention of a civil remedy provision is taken to have contravened that provision and is exposed to penalties and other orders flowing from that contravention. A person is ‘involved in’ a contravention if they:
- aided, abetted, counselled, procured or induced the contravention
- conspired with others to effect the contravention
- were in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention.
Section 550 furnishes the FWO with the power to commence court proceedings against alleged ‘accessories’ to contraventions. Most commonly, accessories are individuals involved in running the employing entity that committed the contravention (the ‘primary contravener’). This may for example include company directors, company officers, human resources officers and professional advisers.
Accessories can also be other businesses in a position of power within the same supply chain as the employing entity, such as a head contractor or franchisor1.
The inquiry considered contracts across various labour supply chains to assess the contract price, along with the Woolworths benchmarking tool for checking a tender’s viability.
The inquiry reviewed the hours of work required and the time that labour was needed (important because penalty rates and allowances apply under the modern award during certain days and times).
In the examples assessed, the Woolworths contract price was sufficient to meet employee minimum entitlements if there were no more than two levels of contracting in place. However, the inquiry noted that Woolworths only passed on 90% of the annual national wage increases to its principal contractors, meaning that the contractor was required to meet an additional amount of wages each year of the contract without additional payment from Woolworths. This increase was not always passed on by the principal contractors to their subcontractors.
The inquiry identified that one principal contractor was taking as much as 45% of the payments from Woolworths, before passing any payments onto subcontractors.
Woolworths confirmed the margin at which it decides whether a contract is sustainable is one that ‘can move’ in the process of assessing a competitive tender.
The inquiry also noted that the oncost2 Woolworths factored in was very low, especially bearing in mind that the contract could be further subcontracted on. However, the inquiry did not find evidence that demonstrated that Woolworths was an accessory to the breaches committed by others in the labour supply chain.
At the subcontracting level, the inquiry found subcontractors were told what price they would be paid by the principal contractors and for what supermarket sites. There was no evidence of any genuine negotiations on price between the principal contractor and subcontractors. A number of subcontractors informed the inquiry that they had to accept the price being offered by the principal contractor, or an alternative provider willing to take on the sites at the price they were offering would be sourced.
Contractor A was responsible for cleaning multiple supermarket sites and was invited by Woolworths to review its most recent tender and resubmit a ‘more competitive’ final pricing schedule. This followed Contractor A’s submission of a tender which had increased its pricing by 33%.
Contractor A explained that it was unable to revise its pricing due to substantial rises in operating costs, including:
- increases in general insurance, workplace health and safety compliance and workers compensation (despite a ‘no-claim’ history)
- investments in new labour saving machinery to keep labour costs lower
- prior ‘absorption’ of annual consumer price index (CPI) increases
- the need to comply with modern award rates, including penalties and allowances
- the need to fund potential redundancies
- the state long service leave act was set to change the eligibility from 15 years to 10 years (effective from 1 July 2012)
- increase in expenses associated with maintaining and travelling to non-metropolitan stores
- enhanced cleaning standards contained in the tender.
Following consideration of the tenders, Contractor A was only retained for one store. Cleaning contracts for the remaining sites were awarded to Contractor B at a lower price than was submitted by Contractor A. Subcontractor B then subcontracted the work to Contractor C.
The FWO investigated the sites awarded to Contractor C during this inquiry and identified serious non-compliance at these sites, including underpayments.
- See joint penalty decision: Fair Work Ombudsman v Al Hilfi  FCA 193
- Oncost refers to costs carried by subcontractors such as workers compensation, labour costs if sub contracted, chemicals for cleaning, GST, equipment, insurance etc.