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Financial Services Update: How can AFSL audit prompt an ASIC surveillance visit?

In this edition:

  • How can an AFSL audit prompt an ASIC surveillance visit?;
  • Enhanced risk management – back to the drawing board?; and
  • Financial Advisers Register to come in March 2015.

How can an AFSL audit prompt an ASIC surveillance visit?

Although regulators and industry members will always continue to beat the compliance drum, recent regulatory changes may increase the risk of an ASIC visit.

Australian Financial Services Licence (AFSL) holders will be aware that each financial year their AFSL auditor is required to provide ASIC with a limited compliance audit relating to the Licensee’s compliance with their financial obligations. A broader compliance audit is not required under the law, unless ASIC is prompted to initiate a wider audit by, say, an AFSL audit report.

For any AFSL holder who has ever breached their licence obligations, the Corporations Act 2001 (Cth) (the Act) gives licensees the discretion to report to ASIC only those breaches which are considered ‘significant’ or ‘material’, having regard to the criteria in the Act and ASIC Regulatory Guide 78.

Unfortunately, the Act gives AFSL auditors no such discretion to report only those breaches which they consider significant or material. Under s 990K they have to report to ASIC with 7 days any matter they become aware of in carrying out their duties, that:

  • has adversely affected, is adversely affecting or may adversely affect the Licensee’s ability to meet its AFSL obligations;
  • contravenes a condition of the AFSL; or
  • contravenes the licence obligations relating to keeping financial records, producing financial statements and dealing with client monies and client property.

So why is this important?

Let’s say your AFSL auditor reported to ASIC in their annual audit report (form FS71) that you had not complied with one of the financial requirements under your AFSL, such as the new requirements for fund managers with custodial authorisations which came into operation on 1 July 2014, relating to the preparation and board approval of your 12 months’ cash flow projections. Our Blog of 9 July 2014 outlined these financial requirements for wholesale fund managers.Similar requirements came into force for responsible entities at the same time.

Let’s also say that ASIC has received a few similar qualified audit reports and is therefore concerned that a broader group of fund managers may not be meeting their new financial requirements. Prompted by these concerns, ASIC then decides to pay a surveillance visit to some of the fund managers identified by their auditors. This is where the problem arises because you may not have reported a significant or material breach to ASIC or worse still, you may not have even detected the breach. And once ASIC is through the door, there is a high probability their surveillance visit will have a wider compliance scope than just the immediate issue.

As a fund manager what action should I take?

This hypothetical case is a warning that fund managers should not procrastinate. Fund managers with custodial authorisations (and that means all retail and most wholesale fund managers) need to ensure, before the end of the financial year, that they are complying with all of their financial obligations. This includes the new obligations, which commenced on 1 July 2014.

CompliSpace fund manager clients have been provided with updated policies and procedures to deal with these new financial requirements but for any other fund managers, please contact us for assistance.

Enhanced risk management – back to the drawing board?

Responsible entities (REs) are already required to have adequate risk management systems in place, and to ensure that they are meeting this obligation on an ongoing basis, as part of meeting their core obligations under the Act and RG 104. However, those readers who have followed our financial services blogs over the last few years will be familiar with the progress of various ASIC Class Orders and associated Regulatory Guide (Risk Management Systems for Responsible Entities) which have been sitting in ‘final draft’ since around August 2013.

ASIC has now announced that it is making enquiries of a number of REs of registered managed investment schemes regarding their risk management practices which are ‘a proactive response to the increased market volatility in global and domestic markets [and] aims to examine the adequacy of risk management and disclosure practices in the current environment’. ASIC will direct its focus to fixed income funds, exchange-traded funds and other funds that may experience liquidity issues during periods of market volatility.

In the meantime we are left guessing as to the reasons for the possible delay in the release of this Regulatory Guide. This may be related to updated requirements contained within various RGs, including those within RG 166 and RG 133, which have been released over the last few years. These changes have required REs to adopt additional risk control strategies with a particular focus on enhancing financial and custodial controls – areas highlighted by ASIC as posing higher risks to REs during its original consultation on these proposed changes.

It does seem strange that a draft RG can come so close to release and then be delayed for so long. Perhaps industry has spoken and it is a case of ‘back to the drawing board’ with these proposed changes. Either way, we are back into another round of industry consultation but REs should be aware of their existing risk management obligations, including those contained within the Corporations Act.

Financial Advisers Register to come in March 2015

ASIC has announced that a new register of financial advisers will be released on its MoneySmart website on 31 March 2015.

The Federal Government announced details of the register’s content back in October 2014.

Legislative background

An Exposure Draft of the Corporations Amendment (Register of Relevant Providers) Regulation 2014 was released in December 2014 which proposed amendments to the Corporations Regulations 2001 to allow ASIC to establish and maintain the register and for AFSLs to collect and provide information to ASIC concerning financial advisers which operate under their licence. Consultation on the Exposure Draft closed on 17 December 2014.

According to the Treasury Department, the enhanced register will:

  • enable consumers to verify that their adviser is appropriately authorised to provide advice;
  • find out more information about their adviser before receiving financial advice; and
  • give employers greater ability to assess new financial advisers and improve ASIC’s ability to identify and monitor all financial advisers, which will help to remove disreputable participants from the industry over time.

ASIC’s press release states that the formal regulations will be introduced shortly.

Will it work?

The Senate Economics Committee’s Inquiry into ASIC’s performance revealed serious deficiencies in how the regulator responded to and dealt with, information about misconduct inside the financial planning arm of the Commonwealth Bank. Creating a more substantive public register of financial planners is an initiative designed to increase confidence in the industry by requiring AFSLs to disclose more information about themselves and their authorised representatives and representatives, to investors and the public.

However, as noted by an article by the Sydney Morning Herald (SMH), the register will operate on an ‘honesty system with zero oversight.’ That is, there is no independent entity verifying the information which AFSLs are contributing to the register. This creates a risk of inaccurate or false information being recorded and relied upon by those who access it.

So how can consumers rely on the credibility of the planner they are investigating on the register?

According to Financial Planning Association Chief Executive Mark Rantall they certainly can’t assume that the information published on the register is actually true.

The SMH quotes Mr Rantall as saying that ‘consumers must take responsibility for not only checking their planner is on the register but interrogating about the details provided’.

ASIC has since confirmed (according to another SMH article) that it will be able to issue fines for individuals who fail to register or provide false or misleading statements on the register, using section 1308 of the Corporations Act which prohibits such statements.

The maximum fine for individual advisers will be $8500 with a maximum penalty of $42,500 for corporate entities.

The problems with using fines as a deterrence are that

1. their enforcement requires the illegal conduct to be detected in the first place; and

2: in the financial services industry they have, historically, failed to deter.

Realistically, as pointed out by Mr Rantall, by requiring consumers to do their own due diligence on the information included in the register, which may require more time, effort and skill than most people have available, it seems that consumers are back to square one in terms of being the weaker party in the balance of power between the financial services industry and its retail clients. And if the veracity of the information on the register can’t be trusted, how can consumers trust those who are listed on it?

23 January 2015: Workplace Relations Update for Executives On-the-Go

In this edition, three lessons:

  • the anti-bullying jurisdiction of the FWC is here to stay, and sometimes it even works;
  • employers should take care to state explicitly the consequences of breaching their policies; and
  • a former employee gets a $50,000 damages order for breaching his employer’s IP rights.

The anti-bullying jurisdiction is here to stay

In what appears to be the first successful application of the Fair Work Commission’s (FWC) power to make ‘stop-bullying’ orders, the FWC has revoked an order on the basis that it has been successful. The decision by the FWC to lift the previous ‘stop-bullying’ orders, which followed a request by the applicant, demonstrates that the new anti-bullying scheme is working.

Although the facts of the original application to the FWC are confidential and unavailable, the different orders made in this case have been published and their contents present an intriguing story.

What is known about this case is as follows (names are pseudonyms). An application was brought by F against C in March 2014. They both worked at D. Following a conference between the parties, the FWC made orders that:

  • C shall complete any exercise at the premises of D before 8:00am.
  • C shall have no contact with F alone.
  • C shall make no comment about F’s clothes or appearance.
  • C shall not send any emails or texts to F except in emergency circumstances.
  • C shall not raise any work issues without notifying the CEO of D, or her subordinate, beforehand.
  • F shall not arrive to work at D before 8:15am.

Bizarrely, following another conference between the parties in September 2014, it was further ordered that:

  • C shall not exercise on the balcony in front of, or in the vicinity of, F’s desk between 8:15am and 4:15pm.
  • C shall not speak to the applicant in circumstances where there are no other individuals within listening-range.
  • C shall not send any emails to F unless the substance of the correspondence is work-related and a supervisor is also an addressee.
  • C shall not raise any issues relating to the applicant’s work capabilities or job performance without notifying a supervisor beforehand.

In December 2014, F wrote to the FWC stating that:

‘Since our last meeting there has been a negligible amount of conflict between C and myself, and I have felt comfortable approaching my supervisor, with any concerns that I have. The past year of intervention from Fair Work has been very positive and helpful and I am very grateful for the support that has been given to me by Senior Deputy President Drake.
I think that the New Year is an appropriate time to lift the orders and that it is in the best interest of everyone involved to do so.’

The anti-bullying jurisdiction

According to the FWC’s annual report, only one anti-bullying order was issued in 2013-2014 (the first year of the anti-bullying jurisdiction), being the one described in this article. 20 other applications in the anti-bullying jurisdiction were dismissed.

Although these numbers might lead some to question the effectiveness of the anti-bullying jurisdiction, the number of successful orders may indicate the opposite. Anti-bullying applications involve a period of assessment, mediation and conferencing. Matters are case-managed with a view to a resolution, not necessarily a decision or order.

If an order is made, a Commission Member can make any order he or she considers appropriate to prevent the worker being bullied. In dealing with anti-bullying matters, the FWC cannot issue fines or penalties and cannot award financial compensation.

In the case above, it’s clear that the two orders given by Senior Deputy President Drake were aimed at requiring the individual – C – to stop the specified behaviour.

Those orders appeared to be effective, as demonstrated by F’s decision to have the orders lifted.

The ultimate value of the anti-bullying jurisdiction may turn out to be its process, rather than it’s result. In any case, it appears that this world-first innovation is here to stay.

Employers should take care to explicitly state the consequences of breaching their policies

In another case, two employees have been reinstated to their positions, despite having breached the company’s mobile phone policy. The company in question is a (very) large miner, and the mobile phone policy was in place to ensure that large plant and machinery were operated safely. The full decision is available here.

The case

The large miner – we’ll call them Big Hefty & Prosperous Pty Ltd – determined that the use of mobile electronic devices posed a safety risk on mine sites and their use by mine workers and visitors is prohibited. It had a written procedure to this effect. A worker ‘A’, breached this procedure when he turned on his phone and posted a Facebook status whilst waiting for his truck to be loaded. A fellow employee was a Facebook friend of A and she reported the post during that shift to management. An investigation ensued and he was found to be in breach of the procedures. He was given an opportunity to respond, which was considered, but he was ultimately dismissed.

He applied to the FWC for reinstatement. He relied on section 385 of the Fair Work Act 2009 (Cth), which states: ‘a person has been unfairly dismissed if the FWC is satisfied that the dismissal was harsh, unjust or unreasonable’. As part of his argument, A submitted that his personal circumstances  (his partner also worked at the mine, and that a relocation would have a very adverse effect on him), and financial situation (he was indebted and needed to service loans) were relevant, and that he had used the phone while the truck was stationary and that there was no risk associated with his actions. A also argued that the mobile phone policy was not clear that a breach of it would result in dismissal. Furthermore, he contended that the breach of the policy was trivial, and did not warrant dismissal.

The FWC found in his favour, despite agreeing that he breached the policy. The FWC found that: ‘In the current circumstances, the consequences of a breach of the new procedure was not clear, and the evidence demonstrated the introduction of the procedure and training documentation was also not adequate. In essence, this meant that although the policy was clearly breached, the consequences of breaching the policy were not clearly spelled out. Such a breach could not therefore be the basis of a termination. 

The lesson

At a general level, the lesson from this case is that policies, and the consequences of breaching them, should be communicated clearly to all staff. It is questionable whether a large company could have foreseen that this would be its undoing, but the present case is a testament to the way in which unfair dismissal laws take into account a wide range of factors. 

Although safety is undoubtedly an important responsibility of employers, in this particular case, it was found that summary dismissal was not appropriate for the breach of this policy, especially since it was not ‘clear or decisive’ to employees how a breach of it would be dealt with.

Employers should review their policies in light of this decision and in particular whether key policies set out clearly the potential consequences in the event of  a breach whether it be:

  • disciplinary action;
  • formal investigation; or
  • summary dismissal.

A lesson in copyright: recovering property from departing employees

What can you do when an employee steals your valuable intellectual property (IP)? You can sue them. The case of Leica Geosystems Pty Ltd v Koudstaal (No 3) [2014] FCA 1129 shows that remedies are available for employers to claw back their IP from rogue employees.

The facts (with some licence)

L worked for a company, DSL. He left to join another company, Y Pty Ltd (Y). In the month preceding his departure, he copied a large volume of data onto an external hard drive, which he then removed from DSL’s premises. Unsurprisingly, DSL sued. It claimed (in brief):

  • an injunction, preventing L from using the material;
  • an order requiring L and Y to return the materials; and
  • damages and compensation pursuant to the Copyright Act 1968 (Cth).

It was established at trial that a tranche of 190,000 files, and then another tranche of 190,000 files were taken. These were copied onto an external hard drive that was owned by L. L said of this that ‘copying the files was very stupid, very naïve and it was a very thoughtless act’.

When asked why he took these materials, L said: ‘at the time, I felt a deep sense of ownership of that code. It was – it was code that I had worked on’. The judge also concluded that he thought that this material would be useful as a ‘reference’ for his future work. 

The result of the trial was a declaration that L had taken the materials, which were confidential, and the IP of DSL. Orders were made giving effect to this, and also requiring L to return all materials. 

Damages were also claimed. With regard to damages to be awarded as compensation, the Court found that because very little loss was suffered by DSL, only nominal damages could flow. It awarded $1. However, under the specific provisions of the Copyright Act 1968 (Cth) which allows additional damages for ‘flagrant’ breaches of copyright, the Court found that a significant award was justified. It awarded $50,000. 

This case is a reminder of:

  • the importance of clear and explicit contractual provisions, which reiterate the fact that IP created in the course of employment belongs to the employer;
  • the clear legal duty for employees to keep confidential information confidential;
  • obligations owed to employers survive the termination of employment; and
  • the serious consequences, for employees and employers, that can flow from breaches of copyright.

16 December 2014: Workplace Relations Update for Executives On-the-Go

In this edition:

  • 2014 in review; and
  • five fast facts for festivities.

2014 in review

2014 has been a year of change. With the amendments to the Privacy Act 1988 (Cth) taking effect at the start of the year, privacy has been on the minds of many. Our articles on the privacy procedures, practices and systems (Part 1, and Part 2) you need to implement to comply with the new laws were widely read, and useful as a plain English explanation of the new laws.

In Human Resources and Employment Law, this year’s theme has been that employers should be wary of dismissing someone for the right reasons, but in the wrong way. Providing employees with the right to respond to allegations, an opportunity to have a support person, and conducting an appropriate investigation, all help to protect an employer from unfair dismissal claims. The importance of managing employment policies, in order to rely on them when making decisions, was also featured this year. In one case we noted, two flight attendants whom Qantas claimed had mis-used CabCharge vouchers, were reinstated because Qantas could not show evidence that the employees knew and understood the policy that they had purportedly breached.

Significant court decisions have also turned attention to employers and their responsibilities in dealing with workplace sexual harassment and sex discrimination. In this year’s landmark decision of Richardson v Oracle Corporationthe Federal Court of Australia quadrupled damages awarded to a woman who was sexually harassed, referencing ‘prevailing community standards’. This represents a large stick to employers to ensure that their anti-discrimination and sexual harassment policies are up to scratch. At a minimum, staff should receive training on what constitutes acceptable and unacceptable behaviour, managers must monitor behaviour, and once a complaint has been made (or inappropriate behaviour witnessed), it must be addressed promptly and appropriately.

This year has had some good news for employers. The High Court, in Commonwealth Bank of Australia v Barkerhas clarified that no implied term of mutual trust and confidence exists in contracts of employment in Australia. This case also clarified that a company’s policies do not become a part of the employment contract unless the contract says so or it is implied by law.

There has also (finally) been some progress by the WA government in joining the national (model) work health and safety system. In October, the WA Government introduced legislation, based on the national model legislation, for three months of public comment (a ‘Green Bill’). Over the last three years, all States and Territories except WA and Victoria have passed essentially the same work health and safety legislation.

The commencement of the Fair Work Commission’s anti-bullying jurisdiction has not spelt the end of the world. It’s first quarterly report on anti-bullying actions revealed that of the 151 stop-bullying applications, only eight went to a full hearing and decision. Of these seven were dismissed and only one was successfully upheld. In the latest quarterly report, 15 out of 189 applications went to a decision of the FWC, and all 15 were dismissed. The vast majority of applications were resolved between the parties prior to hearing.

Finally, social media and its perils has continued to be an issue for employers. This year’s lesson however, is for employees. Various decisions have shown that an employer can impose restrictions on the private behaviour of employees, where it can be shown that there is a reasonable connection to protecting the legitimate needs of the employer. Contemporary work practices mean that employment does not necessarily end for the day at 5pm, so an employee’s purportedly private posts on job ratings sitesLinkedIn connections and Facebook posts could all lead to his or her downfall.

Five Fast Facts for Festivities

Lest employers be visited by the disgruntled ghosts of dissatisfied employees past, present and future, there will inevitably be Christmas celebrations happening around the country. With that, here are five quick tips to help you achieve a litigation-free holiday season.

  1. Your workplace does not end at the front door of your office. As we previously wrote, the pub across the road can be a person’s ‘workplace’ if there is a work-related reason for being there.
  2. Your obligations don’t end as soon as the bar tab stops. Measures such as providing cab charges are a risk mitigation strategy for making sure everyone gets home safely, not just a perk.
  3. Drug and alcohol policies matter. There are a range of reasons for this, but as a minimum – if you did not have a written drugs and alcohol policy in place, how do your employees know what is acceptable and unacceptable behaviour and how can you react in response to an incident?
  4. Sexual harassment (and racial harassment and bullying) policies apply at all work-related events, including your Christmas party, and any other work-related functions that your employees may attend such as client and supplier end of year events. Policies must be communicated, understood, and enforced. Being under the mistletoe is no excuse.
  5. Social media could be your undoing. Remember, especially if you work in a publicity-sensitive workplace, that any off-colour behaviour by employees can pose a risk to your client relationships. Take the time to remind your staff that social media policies continue to apply.

 

ASIC’s media blitz: cyber security, the professionalisation of financial advisors, and ‘skin in the game’

The past week has been a very busy one for ASIC Chairman Greg Medcraft, who has given three speeches outlining ASIC’s strategy and priorities. The speeches were given at a Bloomberg event, to the Parliamentary Joint Committee on Corporations and Financial Services and most recently, to the National Press Club of Australia.

His three speeches shows where ASIC will be focusing its attention as we move into the new year.

Boards must be alive to the risk of cyber attack

Giving the Bloomberg Address, Sydney, Mr Medcraft named cyber security as a key risk of the digital age, facing all organisations.

A systemic risk

Mr Medcraft described cyber crime as a ‘systemic risk’, which has caught the attention of global policy makers.

An incident of cyber attack can affect:

  • the integrity and efficiency of global markets;
  • the protection of investors; and
  • ultimately, trust and confidence in the financial system.

All of the above occurred earlier this year when, as reported by Forbes, a cyber attack on JP Morgan Chase in America, reportedly compromised the personal information of 76 million households and seven million small businesses.

Cyber-security and its growing importance, was also addressed by the Financial System Inquiry in its Interim Report earlier this year (see our blog).

ASIC’s advice

Mr Medcraft advocates ‘cyber resilience through risk management’ to combat the threat of a cyber attack. Echoing views he has expressed in previous speeches about the importance of directors as ‘gatekeepers’ of the financial system, Mr Medcraft stated that ‘boards should also be alive to the risk of a cyber attack as part of their risk-oversight role’.

Developing a privacy program and training and educating staff on its principles and the risks presented by a breach of cyber security, are key steps in developing an efficient risk management system.

The Office of the Australian Information Commissioner has also released a consultation paper ‘Revised Guide to Information Security – ‘Reasonable Steps’ to protect personal information‘ which provides organisations with useful ways of ensuring information security, in accordance with their Australian Privacy Principles obligations, including in relation to ICT security.

Don’t forget the human side

Mr Medcraft also identified the crucial role that boards play in being aware of the risks posed by cyber breaches.

Why ASIC matters

In his speech to the National Press Club, Mr Medcraft posed a question which many commentators and critics have raised in 2014. That is, ‘who is the corporate watchdog, what does it do and why do Australians care?’

Mr Medcraft answered his question with the following interesting, but not groundbreaking, observations:

  • Australians should care about ASIC because it touches their lives in one way or another through superannuation, credit, small business or through understanding finance and money at any age;
  • ASIC’s focus is on being proactive and forward-looking in response to rapid change and the opportunity it brings;
  • as part of responding to current challenges ASIC supports the introduction of:
    • a ‘user pays’ funding model;
    • harsher penalties for white collar crime which ‘amplify the fear and suppress the greed';
    • having the national exam for financial advisers to build trust and confidence and ‘assure all Australians'; and
    • a consistent language around identifying, evaluating and communicating the relative level of an organisation’s cyber resilience.

This final speech might be his last for 2015. In closing, Mr Medcraft stated that the main reason ASIC matters is that ‘nearly all Australians have skin in the game’ through compulsory superannuation. While this is correct, it may not be enough to mollify all of ASIC’s critics. ASIC’s multifaceted nature, and varying roles as registrar, investigator, policy maker and enforcer in many different industries lead many to wonder whether such a monolithic body can fulfil all those goals.

Financial advisers should be tested like pilots

And for our financial services clients, just in case you think you haven’t had enough attention this year, ASIC has proposed some more changes for the industry.  The below information will give you some food for thought before digesting the Financial System Inquiry (Murray) Report, due to be released  on Sunday.

The day after Treasury’s release of the Exposure Draft for an Enhanced Register for Financial Advisers, Mr Medcraft, appeared before the Parliamentary Joint Committee on Corporations and Financial Services. Mr Medcraft’s opening statement described his passion for lifting the standards of the financial services industry in Australia and his support for introducing a national exam for financial advisers to realise this aim.

Mr Medcraft stated that:

  • ASIC wants a co-regulatory model where the industry sets competency levels for advisers and then ASIC oversees the exam testing those competencies;
  • the exam should be modularised to take account of the different skills different types of advisers have; and
  • the exam should have a compulsory basic skills module with ethics as a cornerstone of it.

The current RG 146 Diploma of Financial Planning qualification for financial planners has been condemned as being susceptible to cheating and too easy to obtain. Although the idea of an exam is a step in the right direction, previous attempts at setting competency standards have been somewhat farcical.

Mr Medcraft concluded his short speech by saying that ASIC wants a system like the one used by the Civil Aviation Safety Authority (CASA) to train pilots. CASA sits and controls exams in accordance with a CASA framework.

ASIC might be hoping that its exam will weed out rogue planners from the financial services industry – if it’s ever introduced.

 

26 November 2014: Workplace Relations Update for Executives On-the-Go

In this edition:

  • sickies costing $33 billion a year;
  • victim awarded $733,000 for ‘systematic’ sexual harassment; and
  • WA seeks feedback on new mining safety laws.

Sickies costing $33 billion a year

A 2014 Absence Management & Wellbeing Survey by an absence management agency, Direct Health Solutions, has found that employees are taking nearly 10 sick days a year, costing employers over $33 billion in payroll and lost productivity costs.

According to an article in the Sydney Morning Herald, the survey says that employees averaged 9.5 days of sick leave in 2013, at a cost of $3,230 per employee;

  • employers said that the most common reasons for short-term employee absence was unexpected illness (82%) and carer’s leave (68%);
  • employees are most likely to be absent on a Tuesday and least likely to be absent on a Friday;
  • four out of five organisations indicated that short-term absences of two days or less were most problematic; and
  • employees in the tourism and hospitality industries had the highest level of absenteeism at 11.9 days a year and the healthcare and manufacturing industries had the lowest levels of staff absences at 7.5 and 7.4 days each.

Although these statistics provide an interesting insight into the economic cost of illness, the average number of sick days taken was still less than the amount allowed by law and it’s impossible to tell if the sick leave was genuine or not – a regular consideration for employers.

Being sick is not illegal

Employees have the right to take sick leave under the provisions of the Fair Work Act 2009 (Cth) (or the Minimum Conditions of Employment Act 1993 (WA) for WA system employees). The Fair Work Act entitles employees to 10 days of paid leave each year if the employee is not fit for work because of a personal illness or injury. Similar rights apply for carer’s leave. Employers are generally entitled to require employees who have taken sick leave to provide them with evidence that would satisfy ‘a reasonable person’ that the leave is genuine sick leave.

A number of awards and Enterprise Agreements provide for the type of evidence an employer may request. For example, medical certificates or statutory declarations, or the other ‘reasonable evidence’. Some awards and Enterprise Agreements also provide for one or two days of absence before evidence is required or may be requested.

It should also be noted that there is no exemption for self-inflicted injury or illness. For example, an employee suffering a hangover who is unfit to work is still entitled to sick leave.

For employers, it can be genuinely difficulty to tell whether an employee is legitimately sick, or merely ‘faking it’.. Many employers are further frustrated by medical certificates which indicate only that the employee was unfit for work because of a ‘medical condition’.

Certificates may not be enough

Generally, the case law is clear in that a medical certificate is sufficient to establish an employee’s entitlement to sick leave. An employer’s gut feel, or even some non-medical evidence that the employee is fit to work is insufficient to refute a medical certificate. However, a recent case has shown that in some limited circumstances an employer can ask for more evidence in addition to a medical certificate in order to have ‘reasonable evidence’.

In February this year, the Federal Court found that Qantas could seek more than just a basic medical certificate from a pilot who had been on long-term personal/sick leave. In the case of Australian and International Pilots Association v Qantas Airways Ltd [2014] FCA 32 Qantas had threatened possible disciplinary action against one of its pilots who had been away from work and had provided multiple medical certificates specifying only that the pilot was ‘suffering from a medical condition and will be unfit for normal work’. He failed to provide Qantas with the more detailed medical report they had requested, which would indicate his ‘diagnosis, prognosis, capacity to return to your pre-injury duties and the anticipated time frame’. Qantas argued that this additional information was key to ensuring its compliance with its safety obligations under the Work Health and Safety Act 2011 (NSW).

A clause in their 500-plus page enterprise agreement provided that ‘if a flight crew member reports sick on the same day that he or she is contacted for duty or on the following day, the Company may require the flight crew member to produce a medical certificate or other evidence of unfitness for duty’.

Justice Rares held that Qantas had acted within its rights as the enterprise agreement did not exhaustively cover Qantas’s and its employees’ contractual rights in relation to either being required to undergo a medical examination, or provide further information in relation to a medical condition.

According to Justice Rares, Qantas required the information for legitimate and proper purposes and that the generally, ‘uninformative medical certificates’ told it nothing about how to plan for the pilot’s absence or return to work ‘beyond him not being there for a period that might or might not be further extended’.

The Court found the enterprise agreement and the Work Health and Safety Act imposed certain obligations on Qantas, and this provided it with the implied contractual right to require its pilots to provide certain medical evidence and to attend meetings to discuss their condition.

Things to consider

As the results of the survey show, and most employers intuitively know, employee absence from work can have a serious economic impact. That said, employees are legally entitled to sick leave. While it is still a little early to rely on the Qantas case in demanding more information in addition to a medical certificate, it should be kept in mind as a possible option in circumstances where a sick or injured worker’s impact on workplace safety is a key issue, and more information is needed to protect the safety of the employee or others.

In the meantime, each employer should analyse frequent absences and investigate things that they can control. Are employees taking sick leave because they are being bullied? Harassed? Stressed with unrealistic deadlines? Underworked? Are there systems in place to prevent, identify, and address those issues?

Courts send a clear message: victim award $733,000 for ‘systematic’ sexual harassment

An employee of an insurance and financial broker has been awarded over $733,000 in damages in a sexual harassment case tried in the NSW District Court. The full case is available here.

The victim had a successful career as an insurance clerk in various companies. She was an expert in aviation underwriting, and through various business dealings, had come to be employed by Mr G, who owned an insurance brokerage company. She began to work with Mr G on 7 July 2008, and ceased working with him on 12 December 2008. She was 46 years old at the relevant time of these incidents.

The case

In 2013, she sued the company. Judge Levy tried the case and found that the victim was sexually harassed.

The victim described some of this conduct as ‘thinking you’ve been raped before you’ve been raped’, and as ‘too revolting for words’. Over the course of her employment Mr G subjected her to at least 12 instances of extreme groping, touching, rubbing up against her, kissing her, and making lewd comments. Whilst the victim was on sick leave, he turned up at her house, let himself onto her property, repeatedly rang her house and her mobile, and had to eventually be removed by police.

As a result of these incidents, she obtained workers compensation payments and remained out of work. During this time, she received a death threat which police traced to Mr G’s accountant’s office (the identity of the caller was unclear, and Mr G denied being this person).

After this, the victim’s psychological health ‘spiralled into decline’. She found it difficult to work, and sought psychological and psychiatric help. She said that ‘if she had to go anywhere she would have feelings of dread, stomach churning, vomiting, increased visits to the bathroom, interference with sleep and the need to take extra Valium’.

In the course of the victim’s illness, she was assessed by different medical practitioners at least 11 times. They all supported her diagnosis of illness and her worker’s compensation claim. The court found that the victim had suffered ‘significant psychiatric illness as a consequence of these cumulative events’.

Damages for sexual harassment

Judge Levy found that the company was negligent in preventing the sexual harassment. In reaching his finding, the Judge referred to Mr G as the ‘mind, will and embodiment’ of the defendant company. His Honour awarded damages based on calculations including past earnings lost by the victim, future lost earnings, and lost superannuation, totalling over $700,000.

This case illustrates the magnitude of damages that can be awarded in cases such as these, where the harassment left the victim unable to work due to her psychiatric injuries.

However other recent cases have also seen increased awards of damages to victims of sexual harassment. We recently wrote about two landmark cases on this issue. One of these cases, Richardson v Oracle Corporation Australia, involved an award of damages of over $130,000 arising from a sexual harassment claim, and that was without taking into account compensation for past and future earnings.

The courts have sent a clear message that community expectations demand that incidents of sexual harassment must be treated seriously. And for employers, that means having systems in place to address the risk: policies, training staff and managers, monitoring, avenues for complaints, and prompt and appropriate investigations and corrective measures if sexual harassment is identified.

WA Resources Safety Update – consolidating for simplicity

We’ve previously written about the status of the introduction of a Resources Safety Bill which will apply the harmonised WHS laws to mine sites. This Bill has yet to be introduced but in the meantime, the Western Australian Department of Mines and Petroleum (Department) has announced a consultation process as part of the reform currently underway of the legislation for mining, petroleum and major hazard facilities (MHFs) in that State. Currently, the safety obligations for these industries are contained within six pieces of legislation and regulation.

The Department wants stakeholders ‘to provide input on five proposed options to structure the safety legislation for mining, petroleum and MHFs’ and to see if that input supports the unification of the various areas of legislation into a single Act.

The five options are:

  1. one safety Act for mining, petroleum and MHF and one regulator (the Department);
  2. two Acts – one for petroleum and MHF and one for mines safety and one regulator (the Department);
  3. four Acts – one each for mining and petroleum and two for the various MHF safety provisions and two regulators (the Department for MHFs and WorkSafe for occupational health and safety (OHS) for the others);
  4. three Acts – one for mining and petroleum and two for the various MHF safety provisions and two regulators (the Department for MHFs and WorkSafe for OHS for the others); and
  5. six acts – maintain the status quo where mining, petroleum and MHF are all dealt with under separate Acts and retain the existing two regulators (the Department and WorkSafe).

The Department prefers option one as it ‘best fulfils the objectives of the reform and would deliver high levels of safety as well as the greatest benefit to the WA community.’

The deadline for providing responses to the Consultation Paper close at 5:00pm WST on Friday, 19 December 2014. A forum is also being held in Perth on Wednesday 26 November. It is expected that the DMP will publish a Decision Regulatory Impact Statement (RIS) on its website by 31 January 2015.

Contact Details

P: 1300 132 090
E: contactus@complispace.com.au
W: http://www.complispace.com.au

This blog is a guide to keep readers updated with the latest information. It is not intended as legal advice or as advice that should be relied on by readers. The information contained in this blog may have been updated since its posting, or it may not apply in all circumstances. If you require specific or legal advice, please contact us on 1300 132 090 and we will be happy to assist.

 

Financial Services Update: ASIC’s Report Card – key points from its annual report

In this edition:

  • ASIC’s Report Card: key points from its annual report;
  • updated guidance for credit licensees on their responsible lending obligations; and
  • AUSTRAC releases annual report for 2013-14

ASIC’s Report Card: key points from its annual report

On 29 October 2014 ASIC’s Annual Report 2013-2014 was tabled in Federal Parliament and subsequently released on ASIC’s website. The report  contains some interesting facts and figures on ASIC’s performance for the previous financial year and improvement initiatives for the future. Despite some claims in the media that ASIC is ‘a regulator that doesn’t believe in regulation‘, the statistics promoted in the report suggest otherwise.

Read on for some fast facts on ASIC for the reporting period 2013-14.

Funding and fees

  • Funding: ASIC received $347 million in government funding, $3 million less than in 2012-2013. ASIC also received $5 million in ‘other revenue’, $12 million less than in 2012-13. Less funding was received for investigating regulatory breaches, and an increase in operational costs was reported. The Companies Unclaimed Monies Special Account was abolished in December 2012.
  • Revenue: ASIC raised $763 million in fees and charges for the Commonwealth, an increase of 6% from 2012-13. According to the report, the increase in revenue is due to an increase in new companies being registered, an increase in Business Names revenue and fee indexation of 2.5%.
  • Expenses: ASIC spent $405 million, down 1% from 2012-13. The decrease is due to a lack of expenditure for investigations.

Enforcement

ASIC:

  • secured 32 criminal convictions and 14 imprisonments;
  • cancelled or suspended 23 Australian Financial Services Licences (AFSLs) and 6 AFSL holders agreed to have conditions imposed on their AFSLs;
  • permanently banned 20 individuals from providing financial advice and 2 agreed to stay out of the industry permanently;
  • recovered $50 million in compensation or remediation for investors including intervening in court-approved settlements for members of class actions against Storm Financial and Macquarie Bank;
  • was involved in securing over $122 million in refunds or compensation to almost 300,000 consumer accounts due to overcharged interest or fees; and
  • commenced proceedings against GE Capital Finance Australia (GE Money) for false or misleading representations to more than 700,000 of its credit card customers, leading to the Federal Court imposing a penalty of $1.5 million.

Engagement with industry and stakeholders

ASIC’s engagement with industry bodies and stakeholders included:

  • 487 meetings with a broad range of industry groups such as the Stockbrokers Association of Australia and the Governance Institute of Australia; and
  • collaboration with international counterparts to secure recognition of the application of Australian laws in foreign jurisdictions including the European Commission proposing that it would recognise Australia’s regulatory regime for central counter-parties as sufficiently equivalent to the EU regime.

Customer contact

ASIC:

  • responded to over one million calls and online enquiries; and
  • handled 911,447 calls – a 27% increase from last year.

New company registration:

ASIC registered 212,573 new companies, an increase of 10.6% from last year.

Fair and efficient markets

ASIC:

  • either stopped, or improved disclosure on, 141 prospectuses, including extending the exposure period on 53 prospectuses;
  • monitored 57 new takeover bids and intervened to seek better disclosure or conduct; and
  • disqualified 60 directors from managing corporations through administrative action.

Misconduct reports from the public

ASIC encourages members of the public to report their concerns about financial services misconduct to them. In 2013-14 ASIC dealt with 10,530 reports of alleged misconduct, 9% fewer than in 2012-13. According to ASIC, this number is back on a level it experienced before the global financial crisis.

Improved website

And finally, if you haven’t noticed already, ASIC has revamped its website, www.asic.gov.au.

Updated guidance for credit licensees on their responsible lending obligations

In August this year the Federal Court handed down its first decision on the responsible lending obligations under the National Consumer Credit Protection Act 2009 (Cth) (National Credit Act) – see ASIC v The Cash Store (in liquidation) [2014] FCA 926 (ASIC’s case summary is available here). The Court found that The Cash Store Pty Ltd (TCS), and its loan funder Assistive Finance Australia Pty Ltd (AFA), failed to comply with their responsible lending obligations in relation to their customers, the majority of whom were on low incomes or in receipt of Centrelink benefits.

The contraventions are alleged to relate to 325,756 credit contracts that TCS arranged, and AFA financed, between 1 July 2010 (when the relevant provisions of the National Credit Act became operative) and 24 September 2012. Due to the volume of contracts involved, only 281 were used in the proceedings.

The decision makes it clear that credit licensees must, at a minimum, inquire about the consumer’s current income and living expenses to comply with their responsible lending obligations. Further inquiries may be needed depending on the circumstances of the particular consumer with Justice Davies noting that ‘the extent to which further information and additional inquiries may be needed in order to assess the consumer’s financial capacity to service and repay the proposed loan and determine loan suitability will be a matter of degree in each particular case’.

In this case, sales of consumer credit insurance by TCS were looked upon very dimly by Justice Davies, who said they were ‘characterised by moral obloquy and the opprobrium of unconscionability’. The matter is listed for a penalty hearing on 15 December 2014.

As a result of this decision, ASIC has updated Regulatory Guide 209 Credit licensing: Responsible lending conduct, incorporating the general findings of the Federal Court on the responsible lending obligations for credit licensees. In particular, RG 209 provides further examples of what may constitute ‘reasonable inquiries’ about a consumer’s financial situation (see RG 209.32 onwards).

RG 209 has also been amended to clarify the existing guidance, as well as the removal of some material that ASIC considers to be repetitive or no longer necessary.

AUSTRAC releases annual report for 2013-14

AUSTRAC, Australia’s anti-money laundering and counter-terrorism financing regulator, has released its annual report for 2013-14, after it was tabled in Parliament on 17 October 2014.

Perhaps the most astounding information contained within the report is the sheer volume of information being received and processed by the regulator. A whopping 91 million reports of financial transactions were received from reporting entities, largely relating to reports of international funds transfers with a combined value of almost $4 trillion.

Suspicious matter reporting figures were also provided in the report. Whilst all AML/CTF Programs should contain documented procedures outlining suspicious matter reporting requirements, it was interesting to see how many reports were actually submitted. AUSTRAC confirmed that more than 60,000 suspicious matters were received during the year with entities submitting reports for a range of reasons. This included unusual activity associated with an account, customers attempting to avoid reporting obligations and perceived risks associated with a country involved in the transaction.

How CompliSpace can help
Australian Financial Services Licence holders are inundated with a raft of corporate governance obligations and an ever-growing compliance burden, that can distract focus away from core business activities.

CompliSpace provides industry-specific policies, programs and procedures to ease the burden of compliance.

Our compliance and corporate governance solutions include Whistleblower, AFSL, AML/CTF and other industry-specific compliance programs.

Contact Details
P: 1300 132 090
E: contactus@complispace.com.au
W: http://www.complispace.com.au

This blog is a guide to keep readers updated with the latest information. It is not intended as legal advice or as advice that should be relied on by readers. The information contained in this blog may have been updated since its posting, or it may not apply in all circumstances. If you require specific or legal advice, please contact us on 1300 132 090 and we will be happy to assist.

3 November 2014: Workplace Relations Update for Executives On-the-Go

In this edition:

  • 141 fraudulent expense charges don’t justify dismissal;
  • WA WHS harmonisation getting (even) closer; and
  • principal must pay $1 million damages to contractor’s employee.

141 fraudulent expense charges don’t justify dismissal

In an unexpected decision from the Fair Work Commission, it recently held that an employee was unfairly dismissed from his employment – despite submitting fraudulent claims for 141 expenses.

The facts

Mr Camilleri worked for IBM Australia Limited for some 17 years and prior to the termination of his employment he had an unblemished employment history.  At the time of his termination, he was a Technical Project Manager/Managing Consultant.  Between March 2011 and September 2012, Mr Camilleri was engaged in an IBM project which required him to travel from his home in Adelaide to Melbourne where the project was based, and stay in Melbourne.  In May 2013 an IBM Internal Audit function commenced which found that during the period from October 2011 to 26 September 2012, Mr Camilleri made various expense related claims in breach of IBM policies, procedures and code of conduct.  The expense claims related to:

  • 141 accommodation payments for when he was not in Melbourne for business;
  • reimbursement for air travel to the Gold Coast to Melbourne for a personal trip; and
  • use of his personal credit card to make payments associated with accommodation payments for his Melbourne trips when he should have used his IBM credit card.

Mr Camilleri’s response

IBM sought a response from Mr Camilleri in January 2014 asking him to show cause as to why his dismissal should not be effected.  Mr Camilleri’s response, provided in February 2014 included the following reasons:

  • in relation to all the improperly incurred expenses, had IBM identified these matters at an earlier time he would have addressed them;
  • the Melbourne accommodation payments were an error on his behalf;
  • he thought he had approval for the Gold Coast trip;
  • he agreed that he should have used the IBM credit card but IBM did not incur any additional costs;
  • he was prepared to repay any amounts to which he wasn’t entitled; and
  • IBM’s decision to terminate his employment was inappropriate given the length of time since these events occurred and the process it had followed was unfair.

Mr Camilleri also asserted that it was always his belief that if he had incorrectly incurred an expense, that IBM’s expense claims system would detect it.

The Commission’s finding

Senior Deputy President O’Callaghan found as follows:

  • Mr Camilleri breached the IBM Business Conduct Guidelines and IBM policy requirements and these represented valid reasons for termination of employment; but
  • the Gold Coast trip and use of personal credit card were not valid reasons for termination of employment;
  • IBM had not given enough consideration to Mr Camilleri’s responses to the allegations;
  • the long delay in investigating the matter and alerting Mr Camilleri to the allegations against him (3 years) was  ‘significant’ in terms of fairness; and
  • insignificant weight was given to Mr Camilleri’s ‘long and unblemished’ record of service with IBM as a factor which mitigated against termination of his employment.

Senior Deputy President O’Callaghan found that IBM’s decision to terminate his employment was unfair and he ordered that Mr Camilleri be reinstated.

Lessons from this case

While the decision to reinstate is somewhat surprising, the findings in general do reflect the usual issues that are taken into consideration when determining whether a dismissal has been harsh, unfair or unreasonable. Having policies and procedures in place is critical in establishing standards of acceptable behaviour, and can be used as a reference point if inappropriate behaviour occurs which may lead to disciplinary measures.  However, the following should also be taken into account:

  • when applying disciplinary measures, consideration should be given to the length of an employee’s employment, and the nature of their employment record;
  • give genuine consideration to the validity of any reasons given in the employee’s defence;
  • allowing a significant amount of time to lapse between the employee’s actions and instigating proceedings against him (3 years) may be ‘unfair'; and
  • avoid bolstering the main reasons for dismissal with additional ‘petty’ factors to support the termination, where the additional factors would not in themselves lead to significant disciplinary action.

Failure to take these factors into account is more likely than not to lead to a finding that a dismissal was harsh, unfair or unreasonable.

WA WHS Harmonisation

In September we wrote about the announcement by the WA government that it would be moving a step closer to the national WHS system by presenting its version of the model legislation for public comment (a ‘Green Bill’).  On 23 October the long-awaited Work Health and Safety Bill 2014 (WA) was finally tabled in Parliament by the Attorney-General and Minister for Commerce, the Hon Michael Mischin giving interested parties 3 months to provide feedback. After the 3 month period, the government will presumably then table a modified version of the bill in the WA Parliament. All States and Territories except  WA and Victoria have passed essentially the same work health and safety legislation since 2011. If the Bill is passed by Parliament, it will replace the Occupational Safety and Health Act 1984 (WA)(OHS Act) and Occupational Safety and Health Regulations 1996 (WA).

Not quite committed yet

In his speech to the WA Parliament Mr Mischin stated that ‘the purpose of the consultation is to assess the merits or otherwise of moving from the existing laws to this variant of the model WHS laws’. Mr Mischin is ‘confident that this approach will enable the government to determine whether to enhance the existing legislation by adopting some of the provisions of the model WHS laws or move to a variant of the proposed bill, or continue as at present’.

The WA harmonisation

The Bill has been drafted to include the core provisions of the Model Work Health and Safety Laws but, according to Mr Mischin it has been ‘refined to reduce red tape and maintain the compliance burden at an acceptable level’.

The Bill adopts the Model WHS Laws’ approach broadening the concept of an employer’s duty of care towards employees, to that of a ‘person conducting a business or undertaking’ (PCBU) holding a primary duty of care to ensure, as far as is reasonably practicable, the health and safety of ‘workers’.

Under the proposed legislation, ‘workers’ for whom the PCBU would have a duty of care, would include employees as well as others affected by its activities,  such as contractors and their employees, and sub-contractors and their employees, and labour hire staff.  In those cases there would be a joint duty of care between the various PCBU (think employers), for example, contractors and subcontractors working at a site owned or controlled by another company. The role of directors and ‘officers’ is also significantly expanded in the Bill to include ‘due diligence’.

See the CompliSpace whitepaper for more information on the changes under the harmonised WHS laws.

The WA variations

In keeping with the State’s determination to create WHS legislation ‘to suit the Western Australian working environment’, the Green Bill proposes the following key modifications to the harmonised legislation adopted by the other States and Territories:

  • removing the concept of WHS entry permit holders who have right of entry to investigate safety issues (relying instead on the entry permit systems  under other industrial relations legislation);
  • removing the power of health and safety representatives (HSRs) to direct work to stop where they believe it to be unsafe (retaining the right of individual workers to stop unsafe work);
  • ejecting the reverse onus of proof in discrimination proceedings where it is alleged that adverse action was taken against a person because of their actions relating to safety ( the WA government’s view is that the burden of proof should rest with the person making the allegation, as is the usual approach);
  • removing volunteers from the scope of the definition of ‘worker'; and
  • reducing record-keeping requirement for notifiable incidents.

A full list of all the changes proposed to the model WHS legislation is available here.

Increased penalties

In line with the other States and Territories that have adopted the model WHS laws, the Green Bill introduces significantly higher penalties than those under the current WA OHS Act.  The WA government had initially baulked at the amounts of penalties in its earlier consideration of the model laws.  The maximum penalties for the highest level of offence, where a duty holder, without reasonable excuse, engages in conduct that recklessly exposes a person to risk of death or serious injury or illness:

  • body corporate – $3 million;
  • individual in a senior decision – making role (‘directors and officers’ of a PCBU): $600,000  or 5 years imprisonment or both; and
  • individual as a worker – $300,000 or 5 years imprisonment or both.

The Resources Safety Bill

Our previous blog on the WA WHS laws also referred to the introduction of a Resources Safety Bill which will apply the harmonised WHS laws to mine sites.  This Bill has yet to be introduced.

What’s next?

After the public comment period closes, the WA Government will review the comments made and consider the best legislation for Western Australian workplaces.

It will then be another case of playing the waiting game while the public and industry waits to see what the WA Government will do next and if a final, harmonised WHS bill will be introduced.

The WA website section on the Green Bill provides details on how to make a submission.

$1 million in damages awarded to sub-contractor

A recent NSW case Waco Kwikform Ltd v Perigo [2014] NSWCA 140 saw a contractor ordered to pay $1 million to the employee of a sub-contractor following safety breaches. While this was a negligence claim, this should alert employers (PCBUs) in the harmonised work health and safety system  on the importance of working out who is responsible for which safety aspects,  where there is a joint duty of care for workers.

The facts

In 2006 Michael Perigo fell 8 metres while dismantling scaffolding on a building site in Glebe and suffered serious injuries.  Mr Perigo was an employee of Bradley Tracey Scaffolding Services Pty Ltd (BTSS), a company hired by Waco Kwikform Ltd (Waco).  Waco was responsible for providing the scaffolding to the site and BTSS supplied the workforce to erect and dismantle the scaffolding.  Waco was hired by Axis Constructions Pty Ltd (Axis), the principal contractor on the site.

Earlier that year there had been two separate incidents where  BTSS workers on different sites had  fallen, suffering serious injuries in one case, and in the other, had died.  Prior to  the second incident, as part of its contract with Waco, BTSS was responsible for controlling the system of work for erecting and dismantling the scaffolding. After the second injury to a BTSS worker, and before Mr Perigo fell, Waco had assumed control on the Glebe site, of the system of work for the scaffolding and for the direct supervision of the workers whose task it was to follow the (revised) system of work prescribed by it.

When Mr Perigo fell from the scaffolding, he sued BTSS (his employer) and Waco (who had contracted BTSS) for negligence.

 

Duty of care

A key issue in the case was the scope and content of the duty of care owed by Waco to Mr Perigo.  The Court of Appeal held that originally, Waco only had a ‘supervisory function at a “high level”‘ of the system of work for the erection and dismantling of the scaffold, and that it was under ‘no continuing duty to prescribe and enforce a system of work for the dismantling of the scaffold’. This had been the responsibility of his employer BTSS, which controlled the system of work and directly supervised its employees.

However, when Waco changed its role and essentially took over the management of safety from BTSS, its duty of care towards BTSS’s (its sub-contractor’s)  employees became much more significant, and to some extent reduced the control that BTSS could exercise and hence the extent of its responsibility.

From that date, Waco’s supervision of the BTSS workers included having a Waco employee on site ‘at all times’ to oversee the dismantling of the scaffold.  Previously, Waco supervisors had only visited the site ‘from time to time’. In addition, Waco instructed that one of its project managers was to supervise the dismantling of the scaffold, ensure as far as possible that the revised system of work was followed and to look out for any obvious safety concerns’.

Lessons from this case

While this case did not deal with the WHS legislation, the same principles apply: both of these companies owed a duty of care to Mr Perigo, to the extent that they had the ability to control or influence activities.  Both parties were held to have failed in that duty to some extent.

This case demonstrates that:

  • it is important for a principal to carefully select a competent contractor to ensure that the contractor has the skills required to carry out a job safely;
  • while the duty of care owed by a principal to the employees of a contractor is usually much less than the duty of care owed to those employees by their employer,  this can change depending upon the circumstances of the particular situation;
  • where a principal decides that they need to take a more active role in safety management where they believe the contractor is not living up to their requirements, they should be very alert to the increased risk they are taking on;
  • where a contractor has had safety failings, the principal should weigh up whether it is more prudent to terminate the relationship with the contractor because of those safety failings and replace them with a more competent contractor, or take over the safety responsibilities; and
  • contractual provisions between contractors and sub-contractors should be reviewed to ensure that safety concerns can lead to a termination of the contract, even if those safety concerns arose from a contractor’s activities on  a different job.

Contact Details

P: 1300 132 090
E: contactus@complispace.com.au
W: http://www.complispace.com.au

This blog is a guide to keep readers updated with the latest information. It is not intended as legal advice or as advice that should be relied on by readers. The information contained in this blog may have been updated since its posting, or it may not apply in all circumstances. If you require specific or legal advice, please contact us on 1300 132 090 and we will be happy to assist.

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