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Financial Services Update: Proposed new ways to deliver notice of meetings to shareholders

In this edition:

  • Proposed new ways to deliver notice of meetings to shareholders;
  • Federal Budget: Proposed introduction of new Collective Investment Vehicles – what they are what this means for funds managers; and 
  • Australian fintechs get a ‘regulatory sandbox’ in the budget.


Proposed new ways to deliver notice of meetings to shareholders

Currently, all companies must give notice of upcoming meetings to shareholders in person or by post unless an individual shareholder elects to receive notice electronically.
There are a number of problems with this approach:
  • It restricts the use of digital services and is not reflective of current tech use. The ‘opt in’ approach results in companies incurring the significant economic and environmental costs of printing and posting notices to shareholders who have not actively chosen to receive an electronic copy of the notice.
  • The creation a cost barrier to companies using more effective and efficient means of communication (for example, a company website) as the key distribution method for company related information.
To facilitate innovation and reduce costs for companies while maintaining appropriate level of shareholder engagement, the Government proposes a technology neutral mode of distributing meeting notices and materials.

In recognition of this issue, the Federal Government has released a proposal paper to modernise the methods companies may use to notify shareholders of meetings.

The proposed solution involves a company being able to meet the requirement to notify members of a meeting (and to make available meeting material) using one or more of three ‘Methods’ (A, B, C).

Those Methods are:

• A: any universally (mail or mobile phone) or near-universally accepted channel (email, website or mobile app) as a default method;
• B: an alternative method of communication with the consent (express or implied) of the shareholders;
• C: an alternative method of communication provided it is effective, unless a member nominates to receive the notice by a universally or near universally accepted channel, or via a method that the member has previously consented to.
A company may adopt Method C provided that the notification offers shareholders an ability to ‘opt-out’ and instead receive the notice of meeting via a channel covered by Methods A or B.
Notice of a meeting must be given individually to every member.
Reduced notice period for public companies

The Paper does not address the recommendation that the 28 day period of notice for meetings of listed companies should be reduced to 21 days. It will be interesting to see if submissions in response to the Proposal Paper will respond to this recommendation.

Submissions are due Friday 17 June 2016 and can be lodged either electronically or by post.


Fed Budget: Proposed introduction of new Collective Investment Vehicles – what they are what this means for funds managers 

The Government has announced the introduction of a new tax and regulatory framework for two new types of collective investment vehicles (CIVs), in an effort to further contribute to positive reform in the funds management industry.

What are CIVs?

CIVs are an integral component of the Australian investment landscape. They are widely held investment vehicles with typically long-term portfolio investors, allowing investors to pool their funds and have them managed by a professional funds manager.

The change

Under the new framework two new CIVs will be introduced.  A corporate CIV will be introduced for income years starting on or after 1 July 2017. This will be followed by the introduction of a limited partnership CIV for income years starting on or after 1 July 2018. The two new CIVs will be required to meet similar eligibility criteria as managed investment trusts, such as being widely held and engaging in primarily passive investment. Investors in these new CIVs will generally be taxed as if they had invested directly.

This measure is estimated to have an unquantifiable cost to tax revenue over the forward estimates period. To implement this measure, the Government will provide $2.0 million to the Australian Taxation Office and $7.8 million to the ASIC, which will be partially offset by $0.7 million in registration fees.


These reforms will enhance the international competitiveness of the Australian managed funds industry by providing new forms of ‘flow-through’ CIVs that are recognised and understandable to foreign investors. Fund managers will be able to offer investment products using vehicles that are commonly in use overseas. This will also maximise the effectiveness of related government initiatives aimed at increasing access to overseas markets, including the Asia Region Funds Passport.

The Passport was first recommended by the Australian Financial Centre Forum in its 2009 report. The initiative aims to increase access for Australian fund managers to growing Asian markets by creating a regulatory arrangement for the cross border offer of managed funds across participating economies in the region. The addition of these new collective investment vehicles will facilitate the commercial success of the Passport in Australia by being more recognised and understandable by Asian investors, hence improving the attractiveness of Australian funds.

The Government will provide $6.4 million over four years from 2016‑17 (including $2.9 million in capital funding in 2016‑17) to the ASIC to implement a regulatory framework for Australia’s participation in the Asia Region Funds Passport.

The cost of this measure will be partially offset by a registration fee, which will be paid by Australian and foreign funds using the Asia Region Funds Passport.

While these initiatives are welcomed, its success will depend on the implementation of an effective regulatory framework to support the legislative changes.


Australian fintechs get a ‘regulatory sandbox’ in the budget

Hot off the back of entering an agreement with the FCA UK to support fintech companies enter into the UK market, ASIC has announced the launch of a regulatory sandbox. The idea in Australia is to allow some fintechs to test products with customers in an environment where the regulatory and administrative requirements are reduced while still ensuring consumer protections. This a concept that has already played out in the UK with the Financial Conduct Authority UK (FCA) launching its own regulatory sandbox for financial services firms earlier this week.

ASIC is set to start public consultation in June to ensure policy is relevant for a digital economy. ASIC has foreshadowed that it will seek feedback on the following:

  • Improving guidance on ASIC’s licensing process and assessment of skills and experience;
  • Flexibility around the AFSL skills and experience requirements; and
  • A licensing waiver for new business to run early stage test and trials (aka Regulatory Sandbox exemption)

Key Features of the Regulatory Sandbox exemption:

  • 6 month licence free testing period;
  • Restrictions of eligibility;
  • Participation of sophisticated investors and up to 100 retail clients;
  • Maintain external dispute resolution and compensation arrangements; and
  • Modified conduct and disclosure obligations.

The UK experience

On 9 May 2016 the FCA launched a regulatory ‘safe space’ sandbox for financial services firms seeking to test innovative products, services, business models and delivery mechanisms while ensuring that consumers are appropriately protected.

The UK sandbox is for two different types of firms: authorised and unauthorised, and the sandbox offers benefits for both:

  • authorised: offers clarity around applicable rules before testing an idea that does not easily fit into the existing regulatory framework.
  • unauthorised: lets them test their innovation in a live environment making it easier for firms to meet FCA requirements, and reduce the cost and time to get the test up and running.

For authorised entities, the FCA will also offer:

  • individual guidance: setting out how it interprets relevant rules in the context of the test.
  • waivers or modifications to FCA rules.
  • no enforcement action letter.

If, after sandbox testing, a firm wants to launch itself into full activity on the wider market, it can do so after satisfying threshold conditions for that wider activity, in essence allowing regulatory measures that are proportionate to the scale of the concept being tested.


Financial Services Update: Government Review of AML/CTF Regime recommends simplification and regulation

In this edition:

  • Government Review of AML/CTF Regime recommends simplification and regualtion of lawyers and accountants;
  • Changes to ASX Appendices to improve consistency; and
  • Suspension for Melbourne company that failed to lodge financial statements.


Government Review of AML/CTF Regime recommends simplification and regulation of lawyers and accountants

On Friday 29th April 2016, the Minister for Justice released the long awaited Report on the Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006(Report) and associated rules and regulations. You may recall that the government commenced this review in 2013 and undertook consultation with industry in 2014-15.

Overall, the Report acknowledges the widespread concerns about the current Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regulatory regime being overly complex and cumbersome, particularly for small to medium businesses, making compliance challenging and expensive.

The Report has made 84 recommendations for government to consider.  Key topics include the simplification of the AML/CTF Regulatory framework, AML/CTF Programs and CDD requirements. The old chestnut – widening the scope to introduce tranche 2 has been raised again, albeit with loose reference for the need for further consultation before any change can occur! No doubt this is good news for those industries caught by tranche 2.

AUSTRAC has welcomed the government’s report and recommendations highlighting the opportunity to:

  • simplify the AML/CTF Act and Rules in areas that have not been effective;
  • provide avenues to expand its ability to provide relief where risks are low; and
  • permit AUSTRAC to re-assess where risks have changed and address regulatory gaps; for example professional facilitators whose activities are intertwined with the financial system, emerging platforms and off-shore services that may exploit vulnerabilities.

A summary of the key recommendations made in the Report are below.

Simplification of AML/CTF Regulatory Regime

  • Simplify the Act and the Rules to improve accessibility, understanding and compliance.
  • Consolidate the Financial Transactions Report Act 1988 requirements into the AML/CTF Act.
  • AUSTRAC to provide greater guidance on how to achieve compliance.

AML/CTF Program

  • Merge and streamline Part A and Part B requirements for an AML/CTF Program into a single requirement for reporting entities to develop, implement and maintain an AML/CTF Program that is effective in identifying, mitigating and managing their ML/TF risks.
  • Introduce serious breach reporting obligations for reporting entities.
  • Review the validity of the current reporting requirements – s47 reports, ITFRs.

Simplification of Customer Due Diligence (CDD) Requirements

  • CDD Rules should be streamlined and simplified as a priority, using plain language to facilitate ease of use and supplemented by enhanced guidance. This would include:
    • the introduction of a single simplified CDD procedure for customers replacing the safe harbour and simplified verification procedures currently in place; and
    • expanding the availability of simplified CDD to designated services and customers that have a minimal or low ML/TF risk.
  • Consideration should be given to utilising new technologies, as alternatives to the existing minimum ‘know your customer’ requirements for individual customers.
  • Amend the AML/CTF Act to expand the ability of reporting entities to rely on customer identification procedures performed by a third party, subject to conditions.

Widening the scope – tranche 2

The Report recommends that the Attorney-General’s Department and AUSTRAC, in consultation with industry, should:

  • develop options for regulating lawyers, conveyancers, accountants, high-value dealers, real estate agents and trust and company service providers under the AML/CTF Act (see our previous blog Lawyers and Real Estate Agents to feel the force of new AML/CTF regulations), and
  • conduct a cost-benefit analysis of the regulatory options for regulating lawyers, accountants, high-value dealers, real estate agents and trust and company service providers under the AML/CTF Act.

Designated Services and activities

  • AUSTRAC should closely monitor the ML/TF risks associated with new payment types and systems (including front-end applications), to ensure gaps do not develop in Australia’s AML/CTF regime.
  • The AML/CTF Act should be amended to:
    • ensure that digital wallets are comprehensively captured by AML/CTF regulation;
    • expand the definition of e-currency to include convertible digital currencies not backed by a physical ‘thing’; and
    • regulate activities relating to convertible digital currency, particularly activities undertaken by digital currency exchange providers.
  • AUSTRAC should identify designated services that pose a high ML/TF risk when provided to an Australian customer by an offshore-based business.


Changes to ASX Appendices to improve consistency

An ASX consultation paper released on 26 February 2016 proposes revisions to ASX Listing Rules Appendices 4C and 5B relating to quarterly cash flow statements. Written submissions closed Friday 29 April, and it is anticipated that the final changes will be released before June 2016 and will come into effect for the quarter beginning 1 July 2016.


Mining exploration entities are required to report quarterly cash flow information in an Appendix 5B while all other start-up entities are required to report quarterly cash flow information in Appendix 4C. Both Appendices are designed to reflect the cash flow statements usually included in an entity’s annual and half-yearly financial statements, as per accounting standards. They require that mining and non-mining entities report on a quarterly basis in order to expand on certain aspects that are deemed particularly relevant for investors, e.g. providing detailed breakdowns of payments made to or received from related parties.


The problem with both Appendices is that they have been made independently of each other, therefore creating some inconsistencies. Moreover, they have not kept pace with current accounting standards.


The proposed changes seek to address these issues as well as to make the two Appendices more user friendly from the perspective of issuers and investors.

The proposed changes include:

  • consistency with accounting standards and use of accounting terminology;
  • for cash flows from operating activities – implementation of separate and consistent categories for “staff costs” and “administration and corporate costs”;
  • for cash flows from investing activities – inclusion of new categories and changes in terminology in relation to tenements, investments, property, plant and equipment, and loans;
  • for cash flows from financial activities – references to the proceeds from the issue of convertible notes, proceeds from the sale of forfeited shares, and transaction costs related to loans and borrowings;
  • new required supplementary information; and
  • other minor drafting and formatting changes including the adoption of new, more intuitive numbering system of the different sections of the Appendices.


Suspension for Melbourne company that failed to lodge financial statements

A Melbourne-based company has had its Australian financial services (AFS) licence suspended for six months after it failed to comply with reporting obligations. Allegianz Pty Ltd (Allegianz) failed to lodge documentation with ASIC and failed to report the breach when it was noticed.


As an AFS licensee, Allegianz was legally required to submit specific documents to ASIC. The company breached its licence conditions by failing to lodge the following documentation over consecutive years:

  • financial statements;
  • auditor reports; and
  • auditor opinions.

This failure was in spite of repeated requests by ASIC to comply with the reporting requirements. Further to this, when Allegianz became aware of these significant breaches of their legal obligations, it failed to advise ASIC in writing within 10 business days. ASIC Deputy Chair Peter Kell stated that this failure to comply with their reporting obligations could be “an indicator of a poor compliance culture” and added that “ASIC won’t hesitate to act against licensees who do not meet these important requirements”.

Allegianz’s licence has been suspended for a six month period due to these breaches.

Focus on culture

Although the suspension of Allegianz’s AFS licence was based on clear breaches of its legal obligations, it is interesting that it was linked to ASIC’s broader focus on compliance culture. As we have discussed previously, ASIC has targeted culture as a key aspect of compliance. See our previous blog: The Spotlight is on Compliance Culture. Given the extent to which AFS licensees are expected to self-report breaches, the importance of seeing legal compliance as a priority is regularly reinforced by ASIC.

Lessons for AFS licencees 

If Allegieanz had notified ASIC when it became aware of the breaches, this could have led to a less serious penalty as it would have more clearly indicated that compliance was seen as a priority for the company and that they took proactive steps to rectify any breaches.

Embedding a culture of compliance can be a difficult job for companies, but given the focus that ASIC is placing on this area, it should be seen as a priority.

4 April: Workplace Relations Update for Executives On-the-Go

In this edition:

  • Worker awarded $1.36 million in damages following abuse, bullying and sexual harassment;
  • Company breaches privacy laws by unlawfully obtaining and distributing tax file number;
  • Employers allowed to spy on workers’ personal emails in Europe; and
  • Don’t treat employees’ safety breaches differently: Fair Work Commission.

Worker awarded $1.36 million in damages following abuse, bullying and sexual harassment

The Supreme Court of Victoria has awarded the former worker of a large construction company $1,360,027 in damages after repeated sexual harassment. The worker, Ms M, worked at the company, WC Pty Ltd (WC), for two years and was subject to sexual comments and occasionally violent threats as part of her work as a labourer. Justice Forrest found that Ms M sustained “very considerable psychiatric injuries as a direct consequence of the bullying, abuse and sexual harassment levelled at her by employees and subcontractors” of WC. WC admitted negligence and only contested the quantum of damages.

Workplace harassment

Ms M worked at WC from August 2008 to early July 2010. During this period, her colleague CH made several offensive and threatening statements to her, including “I will take you into the container and f*** you”, “you have a great f****** a***” and, after Ms M said she was going to lunch in July 2010, “I am going to follow you home, rip your clothes off and rape you”.

When Ms M complained to her foreman about an offensive comment, he laughed in response. When she complained to the Area Site Manager, she was told to leave the matter with him. No other response was given, until she was moved to another site for nine months. After this period, she was transferred back to the team where she had complained of harassment.

Psychiatric injuries

Ms M did not return to work after this incident and saw several psychologists. She has alternatively been diagnosed with:

  • Bipolar disorder II together with chronic post traumatic stress disorder (PTSD); or
  • a major depressive illness together with chronic PTSD.

Justice Forrest found that, on either diagnosis, Ms M had “suffered chronic and significant psychiatric injuries that have and will continue to diminish the quality of her life”. Her mother and partner both gave evidence that she underwent a significant transformation during her time at WC from a “bright, bubbly, confident young woman” to a woman who lacks motivation, spends a lot of time in bed and breaks down around four times a week.

Legal liability

WC admitted liability in this case, and so the only issue in contention was the extent of Ms M’s psychiatric injuries. It is clear that the harassment was unacceptable and, if the culture of the company permitted the conversations or comments to occur, Ms M was denied her right to a safe workplace.

Alongside the comments themselves, the failure of WC to effectively address Ms M’s complaints represents a serious breach in their duties as employers. Ms M stated that one of the reasons why she was wary of complaining about the conduct was that her supervisor participated in the abuse and bullying. When she complained about the behaviour to the Area Site Manager, she was not informed of any outcome and was moved to a different team. She was then moved back to the team, and was subjected to abuse when she complained.

WC failed to create a safe working environment for Ms M and, when they became aware of the harassment, failed to adequately address the issues.

Lessons for companies

Such egregious examples of sexual harassment should be clearly forbidden by all organisations, with clear systems in place to deal with any breaches. The victim should not be forced back into an environment in which they are uncomfortable, and there should be multiple avenues for lodging complaints to cope with the possibility that the first point of contact is implicit in the inappropriate behaviour. The high level of damages reflects the seriousness with which the Court approaches breaches as sustained and harmful as these.


Company breaches privacy laws by unlawfully obtaining and distributing tax file number

The Acting Australian Information Commissioner, Timothy Pilgrim, has found a life insurance provider (LIP) liable after it obtained the tax file number (TFN) of the husband of one of their insureds, Mrs X. The process by which the TFN was collected and LIP’s subsequent distribution of the information constituted a breach of National Privacy Principles (NPP) 1.5 and 4.1. LIP was ordered to apologise in writing to Mr X and to pay $10,000 in compensation. As the Office of the Australian Information Commissioner’s (OAIC) investigation commenced in December 2013, the matter was decided under the Privacy Act 1988 as it existed prior to the 2014 amendments which introduced the 13 Australian Privacy Principles (APPs).  The APPs that are similar to the NPPs in question are APP 5 Notification of the Collection of Personal Information and APP 11 Security of Personal Information.

The breaches

The actions of LIP relate to a claim that was lodged by Mrs X in 2005 in which she emphasised that her husband valued his privacy and did not wish to have his information collected. LIP stated that they had waived any requirements for Mr X to provide his personal information. Despite this, LIP’s forensic investigator obtained Mr X’s prior tax returns from the couple’s former accountant and failed to disclose this to Mr X. Following Mrs X’s 2010 complaint to the Financial Ombudsman Service (FOS) regarding LIP’s handling of her claim, LIP provided documentation to the FOS that included unredacted copies of Mr X’s tax returns.

Acting Commissioner Pilgrim found that LIP had breached its obligations under the NPPs by obtaining the information without notice and by providing that information to a third party without permission. It was noted that, although the company had policies in place relating to the handling of personal information, these were not followed in this instance.

A failure of internal policy?

In this case, LIP reported that it had a policy in place to ensure that information that was passed to third parties had all sensitive information redacted. Not only did this not occur, LIP was criticised by Acting Commissioner Pilgrim for failing to retain records relating to the transfer of information. It was argued that LIP should have retained either a copy of the information passed onto the FOS, or at least kept records of the completion of procedures such as the redaction of sensitive information. The implementation of effective privacy policies and procedures is contingent on the organisation having the capacity to demonstrate their compliance.

Consequences for other organisations

This case demonstrates the importance placed by the OAIC on organisations not only on creating an appropriate privacy policy, but on ensuring that it is implemented within the organisation’s procedures. LIP was required to issue an apology and pay $10,000 in compensation, based purely on the non-economic losses suffered by Mr X. If the complainant had proved financial loss, this could have been a much greater sum.

Breaches such as this do not only carry financial risks for companies. An insurance provider such as LIP trades on its reputation and requires clients to disclose personal and sensitive information in order to properly function. If the organisation is found to mishandle the personal information of clients, it can cause serious reputational damage with severe consequences for the business as a whole.


Employers allowed to spy on workers’ personal emails in Europe

The European Court of Human Rights has handed down a decision that employers can view workers’ emails including personal messages with loved ones during work hours. The case was brought by a Romanian man who was dismissed after his employer viewed his private chats.

Joint head of employment law at Lewis Silkin in London has said that this case is significant for a number of European countries. It also raises some interesting issues when compared with Australian law.

The case concerned the dismissal of a Romanian national by his employer, a private company, for having used the company’s internet for personal purposes during working hours in breach of the company’s policy. The man was employed at the company between August 2004 and August 2007.

When the worker commenced work at the company, his employer requested that he create a Yahoo Messenger account for the purpose of responding to clients’ enquiries. In July 2007, the worker was informed by his employer that his Yahoo Messenger communication had been monitored for the past week and that the records showed he had used the internet for personal purposes. The worker initially denied the allegation, but was then shown the transcript of conversations he had had with his brother and his fiancée relating to personal matters. He was dismissed for using company resources for personal purposes.

The worker challenged the decision before the courts on the ground that his employer had violated his right to correspondence in accessing his communications in breach of the European Convention on Human Rights. Article 8 provides a right to respect for one’s “private and family life, his home and his correspondence”.

His complaint was dismissed at first instance because his employer had complied with the dismissal proceedings provided by the European Labour Code and the worker had been sufficiently informed of the company’s policies. The worker then appealed the decision, asserting that emails were protected by Article 8.

The Romanian Court of Appeal dismissed the appeal, relying on European Union law and held that the employer’s conduct was reasonable. The Court found that the monitoring of the worker’s communications has been the only method of establishing whether there was a disciplinary breach of company policy.

The worker then applied to the European Court of Human Rights (ECHU), relying on Article 8 and complaining that his employer’s decision to terminate his contract had been based on a breach of his privacy.

The ECHU found that Article 8 was applicable to the case however it did not find it unreasonable that employer would want to verify that employees were completing their professional tasks during working hours. The ECHU also noted that the employer had only accessed the worker’s account in the belief that it contained client-related communications.

Therefore, it was held that the employer’s monitoring of the worker’s communications had been reasonable in the context of disciplinary proceedings.

Mr Burd of Lewis Silkin said the most significant part of this finding by the ECHU was that the employer was not only permitted to access the Yahoo account, but also to use the contents of what was found against the employee.

This case acts as a prompt for Australian organisations to review the wording of their social media and email privacy policies. Some organisations will have policies that explicitly prohibit personal use of computer systems such as the internet and email, while others will allow for ‘reasonable personal use’ of these systems. These policies need to be clearly written and communicated to all employees.

It is up to employers to decide the stance to take on this issue as there is no legal obligation to influence best practice. You may face legal repercussions however if your policy is not explicit or is not communicated sufficiently to staff and an attempt to enforce a ban, or partial ban, of employees using company systems is made.


Don’t treat employees’ safety breaches differently: Fair Work Commission

The Fair Work Commission has ruled that Jetstar must reinstate a 60-year-old engineer who committed safety breaches because it had applied its safety policies inconsistently in the past.

Jetstar dismissed a licensed aircraft mechanical engineer at Avalon Airport for driving an airport “tow-tug” on a public road to pick up some lunch from a nearby service station.

The Jetstar van usually available had broken down and the employee believed that he could not obtain lunch without leaving the Airport. It was well known to employees that the tow-tug was not permitted to be used on a public road as it was not registered and was not equipped with adequate safety protections to drive on a public road. Mr Gill was found to have breached Jetstar and Qantas policies.

The employee admitted the conduct, and the Commission was satisfied that the misconduct was a valid reason for his dismissal.

Valid reason but harsh

The Commission found that while there was a valid reason to dismiss, and Jetstar had followed appropriate procedures in investigating and dismissing Mr Gill, the Commission took into account that Jetstar had not dismissed other employees who had breached safety protocols.

Examples of safety breaches which appeared to be far more serious, for which Jetstar did not dismiss employees, included:

  • an engineer signed off on a safety check without undertaking a mandatory check resulting in a plane having to make an unscheduled stop when an engine oil cap was not fitted; and
  • during safety testing, main landing gear was not safe-tied, resulting in the main landing gears swinging up and missing an apprentice by inches – the employee had a formal warning placed on their file.

On this basis the Commission found that Mr Gill’s dismissal was harsh and he was unfairly dismissed.


Compensation is only available as a remedy for unfair dismissal where the Commission is satisfied that reinstatement is inappropriate.

Jetstar argued that reinstatement was not appropriate as the serious nature of the misconduct and the safety critical job role meant that there was a loss of trust and confidence. However, the Commission found that:

  • Jetstar continued to maintain trust and confidence in the employees involved in other more serious safety breaches who were not dismissed;
  • Mr Gill had an unblemished record, accepted his wrongdoing and had shown contrition;
  • there was no evidence that suggested similar conduct would be repeated; and
  • Mr Gill would have great difficulty obtaining other employment.

The Commission ordered that Mr Gill be reinstated to Tullamarine Airport as Jetstar was said to have a greater capacity to absorb Mr Gill back into the workforce at Tullamarine Airport rather than at Avalon Airport and also because reinstatement to Tullamarine Airport was said to allow for closer supervision and monitoring of Mr Gill. Mr Gill was not compensated for lost pay during the period between the dismissal and the Commission’s decision.

Note for Employers

Even where the safety policy is clearly known to employees, and an employer follows procedural fairness in investigating and dismissing an employee, where it is not clear that safety breaches will always result in dismissal, it can be held to be harsh and unfair to dismiss an employee. In this case the employee’s age and anticipated difficulty in finding alternative employment were further factors which led to a decision to reinstate.

See the full Fair Work Commission decision here.


The Spotlight is on Compliance Culture: What does it mean and the cost if you get it wrong

In this edition:

  • ACE Insurance Ltd’s Enforceable Undertaking;
  • ANZ’s One Path failures;
  • Conflicts Management in Funds Management- ASIC Report; and
  • ASIC’s focus on culture.

ASIC’s Culture Club

For the past year, ASIC has been talking about compliance culture, or the lack of, in our finance services industry. Recently, we have started to see the results of its surveillance in this area including investigations of the CBA, Macquarie Bank, ANZ, Ace Insurance (now Chubb) to name a few.

Ahead of ASIC’s annual forum titled “culture shock” which begins today, ASIC’s Chairman Greg Medcraft has said in a recent interview that ASIC is now stepping up its focus on culture by including it in its risk-based surveillance reviews. Mr Medcraft said “what we are now doing is bringing the elements of culture together and considering whether they indicate a cultural problem. Where we think there may be a problem, we will ask questions and do a ‘deeper dive’.”

This blog will explore some of the recent regulatory activity involving culture and ask: what is the cost of poor culture?

Poor Compliance Culture central theme of recent EU

ASIC recently accepted an Enforceable Undertaking (EU) from ACE Insurance Limited (ACE), following an investigation which found evidence that ACE had ‘inadequate or insufficiently documented compliance and risk management policies and systems in place’. The breaches in question related to the Australian branch of the Combined Insurance Company of America (Combined), which operates as a division of ACE.

Misconduct of Authorised Representatives

Combined is an insurance business which sells a number of products including sickness and household accident insurance policies to individual clients.

The misconduct which led to the EU occurred from 1 January 2012 to 30 June 2014, and involved a limited number of the representatives of Combined who were authorised to provide financial advice and/or sell policies to clients. During the relevant period, some Authorised Representatives engaged in misconduct which included:

  • overselling of policies: selling policies which duplicated the consumer’s existing coverage and exceeded Combined’s underwriting limits;
  • twisting/churning of policies: encouraging consumers to cancel existing policies and take out new policies with no benefit for, or in some cases detriment to, the consumer; and
  • selling of unsuitable policies: advising consumers to take up policies when they were ineligible for the coverage they believed they were obtaining.

In addition to the misconduct, ASIC also identified several compliance incidents, which indicated more generally that ACE had failed in some respects to foster and maintain a culture of compliance. This was generally indicated by ACE’s failure to:

  • prepare adequate compliance policies and procedures;
  • take action to address compliance risks once identified;
  • create adequate systems to investigate and supervise Authorised Representatives to ensure compliance with financial services law; and
  • create adequate procedures to ensure consumers were given appropriate financial advice.

The cost of poor culture

Although ASIC noted that several changes have been made by ACE to improve its standard of governance, ACE is required to undertake the following actions as part of the EU:

  • cease issuing Combined products to new consumers;
  • place limits on the advice Authorised Representatives may give in relation to Combined products;
  • appoint an Independent Expert to conduct a Licensee Review (compliance review);
  • implement the recommendations under the supervision of the Independent Expert;
  • remediate consumers who have suffered detriment due to the misconduct of Authorised Representatives; and
  • make a voluntary contribution of $1 million to organisations that promote financial literacy.

The cost of poor culture to ACE has been significant. The Combined Insurance division does not write new business, ACE will be subject to an independent review by a compliance expert and implement their recommendations, will remediate consumers and make a $1 million contribution to charity – not to mention the reputational repercussions of being pursued by ASIC.

Need for a culture of compliance

ASIC summed up the breaches as a failure to foster and consistently maintain a culture of compliance. As discussed above, a company’s poor culture does not in itself constitute a breach of law, but it creates an environment in which misconduct can occur and go unaddressed.

One Path: ANZ’s walk in the wrong direction

One Path is ANZ’s financial services business which provides superannuation, funds management, life and general insurance products. It recently agreed with ASIC to an independent review of its compliance frameworks after systemic breaches were identified including:

  • a failure to provide disclosure documents for some insurance products;
  • processing errors (such as superannuation contributions placed into the wrong account); and
  • inadequate systems or processes.

It also failed to follow up 21,000 unbanked cheques, which were issued for insurance claims, superannuation benefits and refunds of premiums – all outcomes which relate to an underlying issue with its compliance culture.

The One Path review is part of a wider surveillance activity being undertaken by ASIC as it looks at culture (or lack thereof), using its powers under the FOFA reforms relating to financial services providers.

So, what’s been the cost of poor compliance culture? To date, ANZ One Path has paid:

  • $4.5 million to customers in compensation and refunds;
  • $49 million worth of rectifications and other remediation;
  • $2.9 million has been returned to customers, but a further $11.6 million remains in unclaimed insurance claims; and
  • $400,000 in compensation for lost earnings and incorrect fees to superannuation members.

Therefore, the cost of a poor compliance culture for One Path is just shy of $60 million, not including the legal and investigation costs incurred to date, the cost of engaging the Independent Reviewer and implementing its recommendations, reputational cost and customer retention cost.

The takeaway message for other financial services providers: poor compliance culture is expensive.

Conflicts Management and Funds Management – ASIC is looking at you

One of the primary conditions of an AFS Licensee, is to have in place adequate arrangements for the management of conflicts that arise in relation to its activities in the provision of finance services. Using an AFS Licensee’s general obligations as a platform, ASIC is continuing its exploration of the impact of culture through the examination of conflicts management in the Fund Management Industry.

Today it released its report, which examined conflicts management within vertically integrated businesses including those entities which operate at least two of: funds management, responsible entity, superannuation trustee, platform structure (IDPS and IDPS-like structure), investment administration and custody business.

One of ASIC’s specific concerns was how such businesses identify and manage conflicts of interest and the associated risks (conflicts management), as well as what the organisation’s avoidance or management of those conflicts implied about the organisation’s culture.

In its report, it observed that a conflicts policy is one of many policies which have been prepared to satisfy a regulatory requirement rather than seeking to properly identify and address conflicts and embed requirements to address conflicts into business practices.

It further observed, that on some occasions conflicts of interest may not have been adequately managed, leading to concerns that an appropriate and, in some cases, necessary outcome may be to restructure business units, roles and remuneration structures to prevent the conflict of interest arising.

ASIC Chairman, Greg Medcraft said, ‘As our work on culture has indicated, the ‘tone’, being the attitude and commitment to conflicts management, must come from the ‘top’ and needs to be appropriately cascaded down the organisation through business practices, communication and accountability, as well as appropriate governance and remuneration’.

‘ASIC encourages all Australian financial services licence holders to carefully review the findings of this report, whatever their market sector, to assess their own approach to conflicts management and broader cultural issues’, Mr Medcraft said.

ASIC Focus on Culture

Since the release of ASIC’s 2014-2015 strategic outlook, corporate culture and its role in maintaining the integrity of the Australian Financial Services Industry has been a hot topic – but one that is not widely understood, practically speaking.

In his opening statement to the Senate Committee, ASIC’s chairman Greg Medcraft said that in addition to administrative action (revoking or putting conditions on an AFS license – as recently experienced by Macquarie Bank) ASIC takes the position that ‘when an officer breaches a law ASIC administers – and culture is responsible – then the officers and the firm should be responsible’.

ASIC has identified poor culture as a key indicator of prominent regulatory breaches that need to be investigated.

What is corporate culture and why does it matter?

Issues with corporate culture exist where there is a disconnect between an organisation’s goal to provide financial services at a profit and acting in the best interest of the consumer. Following the GFC financial services regulators  globally have increasingly focused on the culture of an organisation in addition its conduct.

From a regulator’s perspective, a positive corporate culture enables an organisation to foster business activities that are fair and honest in the treatment of customers. A negative corporate culture is one which promotes the interests of business above the interest of the customer in its activities and brings the organisation and the industry into disrepute.

What does good corporate culture look like?

In May 2015 ASIC introduced the ‘3 C’s framework on culture risk for organisations’ (see our previous blog Penalties for poor corporate culture – will ASIC ‘nudge’ your organisation?).

The 3 C’s stand for: communication, challenge, and complacency. These elements are important influencers of an organisation’s culture.

Communication of conduct expectations needs to be clear, concise and effective. It must be proactive and regularly and consistently repeated across the organisation.

Organisations should Challenge existing practices to determine whether the current conduct is appropriate and foster an environment where employees are encouraged to (and rewarded for) raising concerns.

Organisations must not be Complacent – conduct should be reviewed continually, enforced and validated.

As such, ASIC will to look at an organisation’s internal operating systems to ascertain if poor organisational culture is the driving force behind poor conduct.

ASIC’s enforcement toolkit

At present, ASIC has no powers to specifically punish organisations for poor culture. Despite this, it has flexibility within current criminal and civil sanctions to warrant attention.

In severe matters, ASIC may refer the conduct of the organisation to the Commonwealth DPP for prosecution.

The Commonwealth Criminal Code (the Code) provides that a company may be found to have committed an offence under certain provisions of the Code if it is proved that a corporate culture existed within the company that ‘directed, encouraged, tolerated or led to non-compliance with the relevant provision’ or which did not require compliance with the provision.

Under the Code, ‘Corporate Culture’ is defined as ‘’attitude, policy, rule, or course of conduct or practice existing within the body corporate generally or in the part of the body corporate in which the relevant activities take place.’’

The general obligations of AFS licensees outlined in s912A of the Corporations Act provide a legislative framework which can be used to frame an investigation into an organisation’s culture in connection with its conduct.

Despite this, ASIC is calling for increased powers to target poor culture.

ASIC has sought for comparative offences such as those in the Code to be incorporated into the Corporations Act. Last year ASIC made submissions to the Financial Services Inquiry that it be granted wider regulatory powers, including the ability to punish both individuals and companies for poor organisational culture.

In its response, the Federal Government agreed to a review of the penalties that ASIC considers.

Despite its lack of direct powers to penalise poor culture, ASIC has recently demonstrated its investigation and enforcement of poor culture in the ACE Insurance Enforceable Undertaking, where breaches of misleading and deceptive conduct and a failure to act in the best interests of consumers were framed against its poor risk and compliance culture.

The Net Result

Creating a positive compliance culture goes beyond the creation of policies and procedures; it requires consistency in the enforcement and promotion of these policies and procedures as the only acceptable conduct within the workplace. A company should pay careful attention to the attitudes and reactions of employees towards compliance issues, to ensure that any shortcomings are identified and addressed according to company policy before they develop into a systemic problem throughout the organisation. Get it wrong and it’s likely you’ll be front and centre of ASIC surveillance activity – and in the press.

One thing is for sure, we are going to see a lot more regulatory action from ASIC with a focus on culture over the coming months and no doubt, year.

CompliSpace will be running webinars on this topic in the next couple of months so watch this space. In the meantime, please get in touch if you have any questions about how you can improve the compliance culture of your organisation.


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.

AML/CTF Compliance Reporting: Have you amended your AML/CTF program to meet the updated customer due diligence requirements?

The 31 March deadline for the submission of your section 47 anti-money laundering and counter-terrorism financing (AML/CTF) compliance reports to AUSTRAC is fast approaching. This year, you will notice a new question, No 23, being asked: “Have you amended your AML/CTF program to meet the customer due diligence requirements that came into effect on 1 June 2014?”

This question relates to the additional (and extensive) customer due diligence requirements (CDD) that were implemented on 1 June, 2014 under the AML/CTF Act and Rules. All reporting entities were expected to be fully compliant by 31 December 2015.

A summary of the CDD amendments to the Rules is outlined below.

CompliSpace has also prepared a checklist to assist you in implementing the new requirements. Please click here to request this checklist.

Summary of Amendments to the Rules:

Chapter 1: Key terms and concepts

  • New definitions: of senior managing official, Australian Government Entity, reasonable measures, beneficial ownership, politically exposed persons (PEPs).
  • PEP: enhancements to the procedures to be applied once a person is determined to be a PEP

Chapter 4: Customer identification

  • Expanded application: this Chapter now applies to both Part A and B of your Program.
  • Additional Risk Factors: reporting entities are now required to consider the expanded customer types, source of funds and wealth.
  • Settlor of Trusts: new requirement to collect and verify the full name of the settlor of the trust unless an exception applies (such as the settlor contribution being under the $10,000 threshold or where the settlor is deceased).
  • Beneficial Owner: new procedures to require collation identification and verification of each beneficial owner. Reporting entities may assume the customer and beneficial owner are the same unless safe harbour provisions or exceptions apply.
  • PEPs: new procedures for the identification and verification of PEPs, including requirements to include appropriate risk management systems in the AML/CTF program to determine whether a customer and/or beneficial owner is a PEP either before providing a designated service or as soon as practicable afterwards. Additional requirements apply to foreign PEPs and those domestic PEPs and international organisation PEPs that are considered high ML/TF risk.

Chapters 8 & 9: Part A of a standard AML/CTF program, or Part A of a joint AML/CTF program

  • Additional Risk Factors: reporting entities are now required to understand the nature and purpose of their business relationships with customers and consider the control structure of any non-individual customers such as trusts and companies.

Chapter 15: Ongoing Customer Due Diligence

  • Expansion of ongoing CDD requirements: to reflect the requirements applying to both customers and the beneficial owners of those customers (including PEPs).  Know Your Customer requirements in relation to beneficial owners.
  • Additional Enhanced CDD program: compulsory application to foreign PEP customers (or customers with foreign PEP beneficial owners) and additional measures to undertake when ECDD applies to customers and beneficial owners.
  • Additional Record keeping and updating requirements: reporting entities are required to take reasonable measures to records and information collected during customer and beneficial owner identification procedures.

Chapter 30: Disclosure Certificates

  • Circumstances and Procedures for the use of disclosure certificates.

See our previous article for more information about compliance with the CDD requirements.

How can CompliSpace help?

CompliSpace provides a range of AML/CTF services, including AML/CTF training and Independent Reviews. We also have a unique AML/CTF Program offering, designed to ensure ongoing compliance with the continually changing AML/CTF Act and Rules.

If you have questions about your compliance, or the submission of your AML/CTF compliance reports to AUSTRAC, contact the CompliSpace team.

Financial Services Update: Advertising continues to be in ASIC’s surveillance spotlight

In this edition:

  • Advertising continues to be in ASIC’s surveillance spotlight;
  • ASIC releases consultation paper on retail client review and remediation programs and update to record-keeping requirements; and 
  • ASIC enforcement reminder: the importance of not deleting emails.


Advertising continues to be in ASIC’s surveillance spotlight – AFS Licensees beware!

Keen readers of ASIC publications will have noticed that ASIC is continuing its surveillance focus on potentially misleading or deceptive advertising and promotional material.  This focus includes wholesale as well as retail Australian financial services (AFS) licensees.

Two weeks ago, ASIC issued a Media Release about action taken against ACE Insurance Limited and Tiger Airways Australia Pty Limited to force the removal of misleading promotional statements on their websites concerning ACE Insurance travel insurance policies.

This Media Release also highlights 17 other similar cases over the last few years where ASIC has taken action against companies for misleading advertising. But this is not the full extent of ASIC’s recent surveillance of advertising and promotional materials. During the 2015 financial year, ASIC took action with 54 cases of potentially misleading or deceptive promotional material.

As distinct from some of ASIC’s more time-intensive surveillance activities, you can imagine that picking up potentially misleading or deceptive advertising and promotional material is a relatively low-cost, high impact exercise.

So, AFS licensees beware! If you don’t already have a robust advertising and marketing material policy, now would be a good time to establish one and ensure that your advertising and promotional materials are only issued after a thorough sign off process, taking into account your legal obligations under consumer protection laws. For guidance, ASIC has published Regulatory Guide 234dealing with advertising financial products and services.


ASIC releases consultation paper on retail client review and remediation programs and update to record-keeping requirements

Note: This ASIC proposal only affects AFS licensees who provide personal advice to retail clients and who may need to remediate clients who have suffered loss as a result of the decisions and behaviour of the licensee, or its advisers, in relation to that personal advice.

In December 2015, ASIC released Consultation Paper 247 (the Paper) which contains two key proposals. First, in order to ensure the quality and effectiveness of retail client review and remediation programs (CRRPs), ASIC is proposing to publish guidance that helps AFS licensees understand when a CRRP should be used and how it should be run. Second, the Paper outlines proposed amendments to record-keeping obligations of AFS licensees. ASIC is inviting stakeholders to provide submissions that address the proposals, with the view to publishing a regulatory guide and class order in May 2016.

What are retail client review and remediation programs?

CRRPs are a way of complying with the legal obligations of AFS licensees to operate their businesses efficiently, honestly and fairly. If a systemic issue has emerged with the decisions and behaviour of an AFS licensee who provides personal advice to retail clients, or an adviser that is a representative of the licensee, and the affected clients are likely to have suffered a loss, a CRRP is a project that may be set up to seek out affected clients, review the advice and remediate the clients where necessary. It can be a large scale program which involves hiring external staff and setting up a new team or it can be managed internally with existing resources.

Examples of CRRPs were implemented by National Australia Bank and Total Financial Solutions Australia, which were both announced in October 2015.

Guidance principles

ASIC has released the Paper as there is a growing trend towards AFS licensees using CRRPs proactively to address systemic issues. The design and management of these programs can involve ASIC and so guidance will help these programs to be effective, fair and transparent. In publishing the guidance, ASIC aims to:

  • improve outcomes for consumers;
  • provide a streamlined and well-understood framework; and
  • set out key principles against which an AFS licensee’s CRRP can be evaluated for efficiency, honesty and fairness.

The Paper proposes the following elements of a CRRP:

  • establishing a program: the Paper proposes definitions of key terms such as ‘systemic issue’ and outlines how ASIC envisages CRRPs will interact with the existing internal and external dispute resolution mechanisms available to the client. In addition, the implications of the AFS licensee’s legal obligations in relation to their duties to operate efficiently, honestly and fairly, to allocate adequate resources to the provision of services, to monitor and supervise representatives, to report breaches and to create compensation arrangements for retail clients are discussed in terms of CRRPs.
  • scope of the program: ASIC emphasises that first, the scope of the CRRP in terms of the class of affected retail clients should be precise yet flexible if further information comes to light through the program and second, that the burden should be placed on the licensee to invite possibly affected clients to participate.
  • design and implementation of the program: all CRRPs should be consumer-focused, free of charge, objective, unbiased and fair, have the support of senior management and should operate fairly, efficiently and honestly. The Paper sets out the standards for the processes a CRRP should comply with when reviewing advice, making a determination and calculating possible remediation. ASIC also highlights the importance of maintaining independent oversight and of keeping adequate records.
  • communicating with retail clients: as ASIC has emphasised that CRRPs should be consumer-focused, the timing and nature of communications is discussed in detail by the Paper. Generally, communication should be direct, straightforward and managed in such a way that the retail client has a clear understanding of what is required of them and their options moving forward.
  • external review of decisions: retail clients should have access to external review processes if they are dissatisfied with the decision of the CRRP. These processes should be clearly communicated to retail clients, and any settlement deeds that are created should not restrict the retail client’s ability to speak to a government agency such as ASIC, the adviser’s professional association or legal representation if they have concerns.

Changes to record-keeping requirements

ASIC has identified an issue with record-keeping obligations based on its regulatory role in overseeing CRRPs. Although AFS licensees are required to maintain records for a period of at least seven years, circumstances may arise where the records are maintained but the licensee has lost access to them. This can occur if a representative moves to a different licensee. This may prevent a CRRP or other scheme from operating effectively as the licensee cannot review the advice that may have been affected.

In order to clarify the obligations of licensees, ASIC is proposing to amend Class Order 14/923 to reflect that the licensee must have access to the records during the period in which they must be maintained.

Evaluating the impact of these changes

In order to fully appreciate the consequences of the new guidance and the amended class order, ASIC has included questions throughout the Paper. If you are interested in making a submission, you must submit your comments by 26 February 2016. For further details, see page 4 of the Paper.

In addition to public consultation, ASIC will also complete a Regulation Impact Statement and submit it to the Office of Best Practice Regulation for approval prior to making any final decision.


ASIC enforcement reminder: the importance of not deleting emails

In the latest development in an ASIC investigation that stretches back to 2009, a Sydney man has been charged with five counts of authorising a false or misleading statement to ASIC and one count of attempting to cause the concealment or destruction of records. These charges related to 17,000,000 shares in Northwest Resources Limited, which were held by Craigside Company Ltd until they were frozen by ASIC in December 2011, before ASIC obtained orders to cancel the shares in April 2014.

The breaches

ASIC alleges that between October 2009 and December 2011, in response to enquiries made by ASIC into the identities of parties who had an interest in the shares, the man authorised the making of false or misleading statements. This is a breach of section 1308(2) of the Corporations Act 2001 (Cth) which carries a maximum penalty of five years.

In addition, the man has been charged with destroying or concealing records where ASIC is investigating or is about to investigate. ASIC alleges that the man requested that a third party delete an email relating to the ASIC investigation, an offence under section 67(1)(a) of the Australian Securities and Investment Commission Act 2001 (Cth). The matter is listed for mention on 8 March 2016.

The importance of being honest

These charges demonstrate the high importance placed on honesty and openness during ASIC investigations. Although the shares themselves were cancelled nearly two years ago, ASIC has continued its investigation into the conduct of the different parties involved. Deleting an email may seem like an administrative necessity if done legally, but if the intention behind its deletion is illegal, it may constitute a serious offence and could lead to five years imprisonment or a $36,000 fine. ASIC takes actions such as this very seriously, which should serve as a reminder to all financial service providers that information should not be destroyed unless the individual is certain that there is not legislative requirement to maintain it as a record.

21 December: Workplace Relations Update for Executives On-the-Go

In this edition:

  • Australia Post liable after ‘no real follow-up’ on discriminatory behaviour in the workplace;
  • Fair Work Commission publishes Annual Report 2014/2015: 352% rise in anti-bullying applications; and
  • Worker’s dismissal was harsh and unjust despite failing a breathalyser at work.

Australia Post liable after “no real follow-up” on discriminatory behaviour in the workplace

Australia Post has been found vicariously liable for the discriminatory behaviour of one of their employees. The Federal Circuit Court in Murugesu v Australia Postal Corporation & Anor found that the actions of Mr B, a supervisor at Australia Post, violated the Racial Discrimination Act 1975 (Cth) and that Australia Post failed to take reasonable steps to address the racial abuse which occurred in the workplace.

Discriminatory language

The applicant Mr Murugesu worked for Australia Post between 2007 and 2011 as a truck driver. Mr Murugesu was born in Sri Lanka and migrated to Australia in 1983.

During this period, Mr B worked as the afternoon supervisor who organised the loading of the trucks. Mr Murugesu claimed that during this period, Mr B regularly called him or referred to him as a “black bastard”, and suggested that he should do “slave jobs”. On other occasions, he was told to “go back to Sri Lanka” and to “go back by boat”. On a hot day when Mr Murugesu was sitting in an air-conditioned room, it was alleged that Mr B said “why the f*ck are you sitting here? You should be able to stand the heat, get out of this place”.

Mr Murugesu stated that he had complained to a number of senior employees of Australia Post relating to the racial abuse, but that no changes had been made. He claimed that he lost a contract shortly after complaining, and that he was told by senior employee to “shut up and keep working”, and warned that he would lose further contracts if he continued to complain.

Australia Post and Mr B both denied that these events and complaints occurred. Australia Post also submitted that it had taken all reasonable steps to prevent discrimination in the workplace through employee training and the effective communication of its policies.

The Court’s findings

It was held that, although the racial abuse did not occur with the frequency or in the precise terms suggested by Mr Murugesu, he had been subject to racial discrimination by Mr B. There was therefore a breach of the Racial Discrimination Act as the applicant was discriminated against based on his race, colour, national or ethnic origin. Mr Murugesu was also denied equal enjoyment of his right to participate in the workplace without discrimination.

In addition, there was evidence to suggest that Australia Post was aware of a problem with racial discrimination based on emails sent in 2010. Although their training system and discrimination policies were described as “exemplary” by the Court, their failure to enforce these policies in a meaningful way led to a finding of vicarious liability. The judge held that, by failing to look into or address the complaints, Australia Post did not take all reasonable steps to prevent the harm from occurring.

Vicariously liable: when are procedures not enough?

Australia Post’s official position towards racism was held to be excellent and clearly demonstrated that the organisation was opposed to discrimination. The training regime, which involved leaflets being distributed along with pay slips, followed up with ‘toolbox talks’ of around half an hour, was described as exemplary. The reason why Australia Post was held vicariously liable is because it failed to effectively enforce its policies. The Court found that the organisation’s response to the incidents said “all the right things…(when) in fact, the matter withered”. The lack of any follow-up on these complaints meant that Australia Post could not rely on the defence of having taken all reasonable steps to prevent the event from occurring.

‘Banter in the workplace’

The judge, in making his findings relating to the verbal racial abuse, discussed the evidence given by Mr B. It was noted that Mr B appeared to sincerely believe that he did not racially abuse the applicant, and made references to a workplace culture where ‘banter’ occurred. The judge made the point that what Mr B might consider to be harmless banter could be perceived as discriminatory behaviour.

The workplace should be a safe environment which does not facilitate exclusion and harassment. Whilst words and actions can be dismissed by the perpetrator as banter or jokes, they can contribute in a real way to an exclusionary culture. Thoughtless or insensitive comments that make employees feel unsafe should not be tolerated, and appropriate training should occur to help workers understand what is acceptable.


This case should act as a cautionary tale for all organisations that believe that just having excellent policies relating to issues such as discrimination, workplace safety or other sensitive areas is enough to shield themselves from liability. Courts do not just look to the official stance of the organisation, but rather to the extent to which this stance is reflected in the actions of the officers employees of the organisation. If policies are not implemented in an effective way, organisations may find themselves liable for the very incidents that their policies contemplate and are designed to prevent.

Fair Work Commission publishes Annual Report 2014/2015: 352% rise in anti-bullying applications

The Fair Work Commission (FWC) has published its Annual Report (Report) discussing its activity over the financial year ending 30 June 2015. The Report indicates that the FWC has made significant progress in meeting its key performance indicators (KPIs) through increased efficiency in processing applications.

The FWC website acts as a resource for employees and employers regarding their respective rights and obligations and provides information about dispute resolution.  The Report notes the level of interest with webpage views in key areas including:

  • 120,535 unfair dismissal eligibility quiz views;
  • 48,242 anti-bullying eligibility quiz views; and
  • 26,158 general protections eligibility quiz views.

In addition to this, the FWC received 207,729 telephone calls in this period,

Breakdown of the decisions made by the FWC

Overall, the case load for the FWC fell by 7.9% in the 2014/2015 financial year when compared to 2013/2014. The majority of sittings in this period were for unfair dismissal claims, the majority of which were resolved through conciliation. When the matter proceeded to arbitration, 58% of the cases were dismissed because of jurisdictional issues.

Where an unfair dismissal case was decided in favour of the dismissed employee, the most common remedy was compensation, with remedies such as reinstatement used comparatively rarely. Only 14% of cases were resolved through reinstatement of the dismissed employee.

Over the year, a notable trend was individual applications under the general protections of the FWA ( also known as adverse action). 879 applications were made during this period in relation to disputes that did not involve dismissal.

Increased use of the anti-bullying processes

One of the most significant areas of change for the FWC is the anti-bullying dispute resolution process. The anti-bullying provisions of the Fair Work Act (2009) commenced on 1 January 2014. This Report contains the statistics from the first full year these provisions have been in effect. During this period, 694 anti-bullying applications were processed. Even thought this number represents a huge 352% increase from the previous financial year, note that the bullying jurisdiction was only available from January 2014.

Of these applications, 46% were resolved through processes such as mediation. Common outcomes that emerged from these processes included:

  • undertakings about future behaviour;
  • clarification of roles, responsibilities and reporting relationships;
  • employer to establish or review anti-bullying policies;
  • provision of information, additional support and training to workers;
  • worker to return to work on agreed conditions; and
  • agreed relocation of the individual named and/or the applicant worker.

If these earlier processes are unsuccessful in resolving the problem, the matter can proceed to a determinative process like arbitration. The FWC resolved 60 matters in the 2014/2015 year by a decision, with only one resulting in an order. This is partially due to the limited circumstances in which a bullying order can be issued (there must be a risk that the bullying behaviour could continue) but can also be attributed to the uncertainty surrounding this area of law.

There is evidence that, likely due to precedents now established, there is now greater certainty in this area. The statistics for the July-September 2015 quarter demonstrated that, although the number of applications is largely consistent with the 2014/2015 levels, there have already been 3 orders issued. As this area of law matures, applications with a small likelihood of success should theoretically decrease as the limits of the law are tested.

Wage and award reviews

The Annual Wage Review was completed in June 2015 following a consultative process with government, industry and other interest groups. The Review recommended that:

  • all modern award pay rates and most transitional instrument wages be increased by 2.5%;
  • the minimum wage should be $17.29 per hour or $656.90 per week; and
  • special minimum wages should be established for employees with a disability and for award and agreement-free junior employees, trainees and apprentices.

The Award Review is ongoing, having commenced in February 2014, and is anticipated to finish in late 2016. It is split into the common issues stage and the award stage. As part of its work in the 2014/2015 financial year, the Review issued 40 statements or decisions and conducted 107 Full Bench hearings.

Worker’s summary dismissal was harsh and unjust despite failing a breathalyser at work

A maintenance worker in Victoria has successfully claimed that the termination of his employment without notice, following a failed blood alcohol test, was harsh and unjust.

The Fair Work Commission (FWC) found that while he had breached the organisation’s drug and alcohol policy, his termination was based on an unwarranted ‘first and final warning’ for a previous infringement, and that the circumstances of the failed blood alcohol test were insufficient to justify a termination without notice.

The facts

The maintenance worker, who had committed a number of relatively minor health and safety infringements was given a “first and final warning” for failing to isolate faulty machinery in the workplace. The significance of the “first and final warning” was that if there was another breach of company policy, the employee would be terminated. Subsequently, the employee underwent a blood alcohol test at 6:37am at a pre-start meeting at work and the test returned a result of a blood alcohol content (BAC) of 0.013%. The worker was instructed to wait 30 minutes, which was the company’s policy, and then a second test was carried out. The worker’s BAC was 0.006%, a relatively tiny amount, but still in breach of the company policy.

The worker was stood down and sent home for the day as per the organisation’s drug and alcohol policy. His employment was terminated four days later, the company citing serious misconduct as a result of breaching the company’s drug and alcohol policy as the reason for the dismissal without notice or pay in lieu of notice.

The worker applied to the FWC seeking compensation and reinstatement. The FWC found that the decision to terminate the worker’s employment without notice or pay in lieu was harsh and unjust and he was therefore unfairly dismissed.

The FWC considered compensation to be a more appropriate remedy than reinstatement, as requested by the employer. The FWC calculated the compensation based on the period it estimated the worker would have remained in employment at the company. Given the deteriorating state of the employment relationship,  the compensation was therefore based on 12 weeks work.


The employer listed a litany of health and safety breaches committed by the worker as additional justification for the termination without notice. The worker’s raised blood alcohol level on the job was not the only matter that the FWC considered during the hearing. The worker had, on a number of occasions, ignored workplace health and safety directions from supervisors, including that the worker:

  • failed to isolate faulty machinery (the basis of a “first and final warning”)
  • failed to wear the required personal protective equipment when operating machinery;
  • failed to ‘get on board’ with the company’s vision for safety;
  • had ‘unfavourable’ safety interactions with managers in the workplace;
  • as a qualified tradesman, was a poor role model for the company’s other employees, particularly young apprentices;
  • was apathetic and prideful leading to a dangerous work environment; and
  • had a clear tendency for resisting change because he thought his way was best.

The organisation also submitted that it would have been a breach of their duty of care to both the worker himself, and others, to allow him to continue work given his continuous demonstration of an inability to comply with the organisation’s safety standards.

The reasons behind the FWC’s decision

To determine that a person has been unfairly dismissed, section 385 of the Fair Work Act 2009 (Cth) (the Act) states that the FWC must be satisfied that the dismissal was harsh, unjust or unreasonable. Usually there are two essential aspects to consider in determining whether a dismissal was harsh, unjust or unreasonable:

  • whether there was a valid reason for the dismissal relating to the person’s capacity or conduct (including its effect on the safety and welfare of other employees); and
  • whether the procedural fairness elements were complied with.

However in this case there was an additional matter: even if there was a valid reason for a dismissal with notice, was it of sufficient seriousness to warrant dismissal without notice?

Taking the issues separately, the FWC was satisfied that a breach of the drug and alcohol policy could be a valid reason for the dismissal,  however there were a number of other matters to take into account. The FWC found that the very low level of alcohol detected and absence of putting anyone at risk, as the employee had not yet started work, along with the fact that the policy envisaged that the employee would have been sent home for that shift rather than terminated, meant that it did not by itself justify termination.  However, if the “first and final warning” had been valid, this could justify the subsequent termination based on the low-level drug and alcohol policy infringement.

The FWC reviewed the circumstances of the first incident to determine whether that was sufficiently serious to warrant a “first and final warning”. It found that it was not. This then meant that the termination was harsh and unfair. The FWC noted that having looked at the history of the case “final warning”  meant that while would have been a valid reason for a dismissal, it was not enough to justify a dismissal without notice.

Finally, and because the employer had relied on the “first and final warning” as a precursor to deciding to dismiss for the drug & alcohol policy infringement, the FWC found that the employer should have put this to the employee when notifying him of the reasons for considering termination.

While it could be argued that it did the opposite, the FWC made a point of saying that the decision should not be seen to condone the worker’s conduct, and the employer should be commended for their efforts to safeguard the safety and welfare of others.

A warning for employers

This case study demonstrates that the dismissal without notice of a worker for serious misconduct must be very serious misconduct indeed.  The high jump bar for dismissal with notice is lower. And once again, notwithstanding the validity of the reason for dismissal, the procedural fairness elements must also be met.  While the Commission in this case appeared to be pedantic, the employee should be advised of all of the reasons why termination is being considered.


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