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6 October: Workplace Relations Update for Executives On-the-Go

In this edition:

  • Tackling the 2015 Rugby World Cup in the workplace;
  • The Fair Work Commission urges workers to make bullying claims through alternative channels; and
  • Compensation for unfair dismissal reduced by one third due to ‘significant and repeated misconduct’.

Tackling the 2015 Rugby World Cup in the workplace

The Rugby World Cup is upon us again, and with it the endless speculation, celebration and commiseration that every major sporting tournament inevitably brings. Events of this scale almost inevitably intrude into the workplace, whether in the form of debate between colleagues, fatigue in the office the morning following a 1:30AM Wallabies match, or personal leave for the truly dedicated fans. As always, workplace managers should be mindful of the opportunities presented and risks posed by an event such as this.

Respectful patriotism 

Firstly, although the performance and quality of the various teams is a hot topic globally, these discussions must be kept respectful in the workplace. This is especially true given that the teams represent nations, and comments can be seen as insensitive or offensive to office members of different nationalities. Negative comments about a team’s performance are inevitable in such a large tournament, but comments that are unnecessarily harsh or directed towards a country as a whole are inappropriate. Managers should clearly outline what behaviour is acceptable and what will not be tolerated in the workplace, and ensure that this is communicated to staff. Passionate rugby fans should be allowed to express their opinions on the tournament, but discriminatory and hurtful comments must be avoided.

Rules around touchline fatigue 

Managers should not require their workers to lie to them about reasons for leave or lateness to work, and instead should be prepared to have an open discussion with their employees about their expectations. Rugby World Cups are a cause for huge excitement amongst fans, and many will inevitably skip sleep to watch the most important matches live. Managers should acknowledge this, rather than ignore it, as this will best allow them to adjust to the risks present in the workplace.

The United Kingdom is the host of the World Cup (and England is nursing its pride following a Wallabies defeat!) meaning that several matches will take place in the middle of the night in Australia. As the competition heats up, more fans are likely to stay up to watch the games live. This can lead to fatigue in the workplace, which harms productivity and can create potential safety hazards. Managers must communicate their expectations of workers and may consider allowing:

  • workers to start later;
  • changes to the work roster; or
  • workers to take personal leave.

There must be a balance between the recognition of the excitement caused by the World Cup and reminders of the standards of behaviour required in the workforce.

Companies should have a drug and alcohol policy in place, and if workers violate this policy, there should be clear consequences. These policies should deal with a range of circumstances so that differing levels of contravention are responded to in an appropriate manner.

Next matches

Managers should be aware of the time and dates of the following matches:

  • Quarter-Final 4: 1AM Monday 18 October
  • Semi-Final 2: 1AM Monday 26 October


Fair Work Commission urges workers to make bullying claims through alternative channels

A recent decision by the Fair Work Commission (FWC) reminds workers that there are other avenues for seeking a remedy (besides the Commission) for workplace bullying where their claims may not meet the statutory threshold for a ‘stop-bullying’ order to be made.

The FWC recently heard an application for an order to stop bullying under section 789FC of the Fair Work Act 2009 (Cth) (Act) in which the applicant alleged bullying behaviour by a co-worker, Mr A.

In making its determination to reject the claim the FWC reiterated that where workers allege bullying, but fail to establish a pattern of ‘repeated, unreasonable behaviour’ as is required by the Act, the FWC does not have the power to make an order to stop the bullying.

The alleged bullying

Mr S alleged a single incident of unreasonable behaviour in which Mr A physically and verbally assaulted him. There was a verbal altercation between the two workers on New Years’ Eve 2014 after which their employer took steps to ensure that the two were not rostered to work together again.

Mr S claimed that Mr A had attempted to give him instructions without authority and had done so in a very rude manner. He also claimed that Mr A has pushed him and made certain threats to his health and safety. Mr S acknowledged that although this was not repeated unreasonable behaviour it was still bullying behaviour.

Commissioner Peter Hampton dismissed Mr S’s application commenting that there was little doubt that the conduct was objectively unreasonable and capable of creating a risk to health and safety. However, there was no evidence in Mr S’s allegations that there was any other incident or form of unreasonable conduct by Mr A capable of constituting repeated unreasonable behaviour.

To refresh our readers, the FWC may find that bullying at work has occurred where:

  • a person or a group of people repeatedly behaves unreasonably towards a worker or a group of workers at work; and
  • the behaviour creates a risk to health and safety.

In this case, Mr A could not satisfy the first limb of the test and accordingly, could not establish that Mr S had bullied him at work, as recognised under the Fair Work Act.

Narrowing the availability of orders from the FWC

This case clearly illustrates one of the limits of the FWC’s capacity to stop bullying under section 789FC of the Act. We have previously written about another decision in which the FWC narrowed the definition of what constitutes bullying ‘at work’ in relation to these claims under the Act.

The FWC urge employees to understand the ‘particular parameters’ of the anti-bullying provisions of the Act and, instead of relying solely on these provisions, to look to the General Protections afforded to employees under Part 3-1 of the Act when searching for remedy or redress to alleged ‘workplace bullying’. These General Protections protect employees’ workplace rights and provide protection from workplace discrimination, were the discrimination is based on specified grounds.

Employers should ensure that they have clear and effective procedures in place to address employee grievances whether they relate to bullying or other issues, to avoid escalation to external agencies.

Compensation for unfair dismissal reduced by one third due to ‘significant and repeated misconduct’

A former employee of the Asia Pacific International College Pty Ltd (APIC) has been successful in their unfair dismissal claim, but has had their compensation reduced based on their own misconduct.

Commissioner Roe of the Fair Work Commission (FWC) found that the employee’s conduct was unacceptable and breached APIC’s Code of Conduct, but because the employer’s termination email did not provide the employee with sufficient details or opportunities to respond, the unfair dismissal claim succeeded.

This is the latest in a series of FWC cases which has seen compensation made available under a legitimate unfair dismissal claims giving weight to both:

  • the employer’s failure to provide procedural fairness to the dismissed employee; and
  • the employee’s actual misconduct.

The facts

The employee began their employment as a full time course coordinator at APIC in March 2014 and was dismissed by email on 5 October 2014. The FWC was presented with extensive email correspondence during this period which demonstrated the mutual dissatisfaction in the employment relationship. The employee sent multiple emails which demonstrated a lack of courtesy and respect to colleagues and students at the College.

The emails included multiple ones directed toward the IT department after the employee had been informed that there were limitations on the IT system and efforts were being made to improve services. The tone of these emails was insulting and accusatory. One email sent to both an IT worker and a range of colleagues referred to the systems as ‘crap’ and asked ‘could somebody do the job properly?’. These emails led to complaints about the employee’s ‘abusive attitude’ from other staff. The employee described these complaints as ‘childish charges’. His communication style led to a warning in September.

In addition, informal complaints were made by students about the conduct of the employee. Emails were sent to students which were described as sarcastic, accusatory and threatening. Other data and observations were used beyond the text of the emails to support these concerns. The employee was also accused of making comments with racial connotations. This accusation was rejected by the employee, and the Principal of APIC agreed to undertake an independent investigation. The investigation did not take place due to the Principal’s busy schedule and the belief that the employee had moved on.

The decision

Commissioner Roe first established that although there was valid reason for the dismissal based on the misconduct of the employee, APIC had breached the Fair Work Act 2009 by failing to notify the employee of the reasons for his termination and not providing an opportunity to respond.

The employee was entitled to 6 weeks’ pay as compensation, based on the estimated time he would have remained at the company. This award was then reduced by one third based on his misconduct.

Employee’s bad behaviour doesn’t justify breaches of the Fair Work Act 

The Fair Work Act 2009 outlines clear factors that will be taken into consideration when determining whether a dismissal is harsh. Section 387 states that the employer must give reasons for the termination. This did not occur in this case. Although the employee had been made aware of concerns and had been warned about his conduct, he was not told that his employment was at risk and was not given an opportunity to respond to the concerns.

APIC argued that the communications with the employee demonstrated that he would respond in an aggressive and defensive manner if issues about his conduct were raised. They therefore stated that providing the employee with an opportunity to respond would not have made any difference. Commissioner Coe did not accept this argument, stating that is was sufficient to prove that there was a real possibility that the employee would have made a constructive response if it had been made clear that his employment was at risk.

Employee misconduct

Although the dismissal was unfair, Commissioner Coe stated that there was ‘no excuse for the abusive and highly critical communications’ which were copied to external lecturers and other staff members. Although employees have a right to raise legitimate issues in the workplace, the employee’s communication style failed to show basic courtesy and respect which is essential to an employment relationship. His communications were not only disrespectful and inappropriate, they also breached APIC’s Code of Conduct. This suggested that the reasons for the dismissal were fair, even though the process used to effect the termination was not.

Procedural issue

An additional matter which supported the finding that the termination was harsh or disproportionate was the failure of APIC to conduct a formal investigation into allegations of racial discrimination after the Principal undertook to do so. The FWC held that the Principal should have consulted with the employee before making the decision not to proceed with the investigation.

Employee misconduct: a mitigating factor in unfair dismissal claims 

The principles derived from the FWC’s decision have been reinforced by another recent case where the compensation for unfair dismissal was limited to six week’s pay due to employee misconduct. In that case, which involved a librarian working in the town of Walkerville, the employee criticised management in text messages and on Facebook prior to his dismissal. Similar to the APIC situation, the unfair nature of the librarian’s dismissal was based on the procedural unfairness of the termination process. A failure to allow the worker to respond to all reasons for the dismissal and the limited time given for the response were highlighted by Commissioner McMahon as being unfair, especially since the employer was aware of the particular vulnerability of the employee. Given these cases have both found unfair dismissal but reduced the quantum of damage based on employee conduct, there are several lessons for employers.

First, an employee must have clear guidance on procedural fairness when considering the termination of employees. These processes must ensure that all employees are given an adequate opportunity to respond and where appropriate, an opportunity to improve their conduct. It is not enough that there is a sufficient reason to terminate an employee, there must also be procedural fairness in the steps taken prior to termination. Although APIC were able to demonstrate that they had a valid reason to terminate the employment agreement, it failed to follow the requirements of the Fair Work Act 2009 and therefore was required to compensate the employee.

Second, companies must have clear mechanisms for dealing with employee complaints. Although the Principal of APIC was acknowledged to have made many attempts to address the concerns of the employee, there was a failure to conduct an investigation, even though it was agreed to on two occasions. Complaints handling procedures must be consultative with those affected and if the employer has agreed to a course of action, they must either abide by it or explain why they have chosen another path.

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

In this edition:

  • Cyberbullying and the workplace: do you have policies and training in place?;
  • Employee’s child sexual offences justified school’s termination of employment
  • Court of Appeal overturns $2.2 million Workers’ Compensation payout.

Cyberbullying ‘at work’ and what it means for employers

Recent research produced by Edith Cowan University in Western Australia emphasises the importance of employers taking a ‘zero-tolerance’ approach to cyberbullying in the workplace and introducing training to help employees identify and manage cyberbullying if it occurs.

The question is, when does cyberbullying occur ‘at work’?

We previously wrote a blog on a recent decision by the Fair Work Commission (FWC) which has shed some light on how to answer this difficult question. In addition to the University’s research, that FWC decision provides some important guidance for employers on the steps to take to help address the issue of cyberbullying in the workplace.

What is ‘cyberbullying’?

The researchers from the University defined ‘cyberbullying’ as repeated acts of intentional aggression perpetuated by an individual or group against a victim using digital technologies and communication tools such as email, mobile phones, instant text messaging and social networking sites. Cyberbullying is a particularly insidious form of bullying because it can happen anonymously, at any hour, anywhere and reach a vast audience.

The choice of anonymity afforded to cyberbullies means that there is disconnectedness from the repercussions of their actions. Because cyberbullying can cause a harmful message to reach a large number of viewers instantly for maximum damage, the research reports that cyberbullying is now a recognised contributor to work-related stress.

At work, employers may have social media policies in place to inform employees about what sort of social media use is sanctioned during work hours using personal or work technology. They may also have anti-bullying policies and procedures in place to inform employees about what behaviours are appropriate at work.

But do existing policies recognise that cyberbullying that occurs outside work hours can still, in certain cases, be considered workplace bullying and subject to the anti-bullying provisions under the the Fair Work Act 2009 (the Act)?

The FWC and bullying ‘at work’

In a recent decision, the FWC confirmed a narrow definition of what constitutes bulling ‘at work’ in relation to claims under the Act. The case involved three employees who applied to the FWC for an order to stop bullying alleging that they were the subject of repeated unreasonable behaviour by other staff. One issue for determination was whether offensive and insulting Facebook posts made about the employees constituted bullying ‘at work’.

Importantly for future cases of cyberbullying in the workplace, the FWC found that bullying ‘at work’ includes:

  • bullying that occurs outside of the confines of the physical workplace; and
  • extends to meal times and work breaks, as well as when the worker is participating in activities authorised or permitted by the employer (i.e. accessing social media while performing work).

The Full Bench of the FWC held that: ‘The relevant behaviour is not limited to the point in time when the comments are first posted on Facebook. The behaviour continues for as long as the comments remain on Facebook…It follows that the worker need not be ‘at work’ at the time the comments are posted, it would suffice if they accessed the comments later while ‘at work’.’

This decision is important for employers and employees because it demonstrates that cyberbullying is just as serious as physical or emotional bullying face-to-face in the workplace.

Most importantly, employees should understand that even if the bullying conduct doesn’t occur within the physical workplace it can still be classified as ‘workplace bullying’. Also, employees should note the FWC’s comment about the permanency of comments on Facebook and understand that as long as the bullying material is available for others to view, the victim can still suffer harm.

How the University’s research findings can help employers

The University research concluded that, after surveying white collar employees between the ages of 18 and 57, organisations should have a zero tolerance policy and offer training in resilience and etiquette to reduce the impact of cyberbullying on employees. The survey was conducted to investigate the mediating role of optimism in the relationship between cyberbullying and job related outcomes.

The University’s researchers recommend that all organisations implement a zero tolerance policy in their workplace that:

  • establishes the organisation’s position on cyberbullying;
  • defines cyberbullying;
  • outlines the consequences for cyberbullying in the workplace; and
  • details the penalties for perpetrators i.e. disciplinary actions.

The study also revealed that it is equally important for employers to train employees to become optimistic and resilient in the face of these kinds of attacks, as it is to deter workplace bullying.

The study dictates that ‘it is highly beneficial for organisations and employers to set up training programs that can detect and manage stress by increasing the awareness and an individual’s ability to cope with stressful situations’. The researchers also explained that this approach will improve the adaptability of employees to stressful environments whilst at the same time reducing the severity of symptoms before they lead to a psychological injury.

What to do next?

Employers should:

  • ensure that their organisation has anti-bullying policies that clearly identify how social media use after work hours can still have legal or disciplinary consequences;
  • implement employee training in how to identify, report and cope with workplace bullying, both in the real life office and through technology; and
  • have visible signage so workers are aware of their obligations under the organisation’s policies, and comprehend the consequences of a breach of that policy.

Implementing a system of policies, training and consequences for cyberbullying, as well promoting an optimistic workplace can help to reduce work-related stress in employees which can only benefit an organisation.


Employee’s child sexual offences justified school’s termination of employment

The Royal Commission into Institutional Responses into Child Sexual Abuse and its inquiries into various child abuse allegations are the subject of current media attention.  Many schools have been the subject of the Royal Commission’s inquiries into how they responded to historical sexual abuse claims by students, including how they handled employment matters relating to employees at the school who may have committed the sexual abuse.

The Royal Commission’s ongoing work highlights a difficult area for employers who provide child services and engage employees for child related work.  A recent decision by the FWC has provided some clarity for employers who find themselves in the difficult position of navigating employment law issues when an employee has been involved in alleged child sexual offences.

The FWC found that an employer who terminated the employment agreement of an employee who was charged with criminal offences which prevented him from receiving working with children check clearance did so legally and that the employee had no grounds for an unfair dismissal claim.

The offences and legal changes

Mr M was employed by the Catholic Education Office (CEO) and worked as a teacher and religious education coordinator in high schools in NSW. In 2012 he was arrested and charged with the indecent and sexual assault of an underage girl. Mr M pleaded not guilty to the charges and was released on bail.

As a result of these charges, the CEO suspended him from work with pay until the determination of the criminal trial. On 15 June 2013, the Child Protection (Working with Children) Act 2012 (NSW) (the Child Protection Act) commenced. Under the new Child Protection Act Mr M could not obtain a working with children check clearance as he would be categorised as a ‘disqualified person’ and therefore could not engage in the work for which he was employed.

At the point that Mr M became a ‘disqualified person’ for the purposes of the Child Protection Act it effectively became illegal for the CEO to employ him in child-related work.

The CEO’s reaction

In November 2013, despite the criminal proceedings having not been concluded, the CEO requested that Mr M change his employment status from ‘suspended with pay’ to ‘voluntary leave without pay.’ Mr M refused to take leave without pay claiming that he would not be able to fund his defence in the criminal proceedings.

In December 2013, the CEO terminated Mr M’s employment.

Mr M filed an application for an unfair dismissal remedy with the FWC and in response the CEO lodged a counterclaim against him.  The CEO’s counterclaim submitted that:

  • Mr M’s termination had not be at the CEO’s initiative (in accordance with section 386 of the Fair Work Act); and
  • instead, Mr M’s employment agreement came to an end as it had been frustrated by his inability to obtain a working with children check clearance.

A contract can be frustrated if performance of the contract becomes impossible for reasons outside the parties’ control, and it results in the contract ending automatically.

The CEO asserted that there was no ‘dismissal’ as defined by the Fair Work Act and therefore Mr M had no jurisdiction to make an unfair dismissal claim under the Fair Work Act.

The FWC’s initial decision

At first instance the Commission found in favour of Mr M.  The Commission held that Mr M’s contract of employment could have continued after the commencement of the Child Protection Act, despite his ‘disqualified person’ status, provided that he didn’t engage in child-related work that involved direct contact with children. According to the FWC, the factual circumstances of the case meant that the CEO terminated his employment on its own initiative, justifying the unfair dismissal application.

On appeal to the Full Bench

The CEO appealed the decision and on appeal, placed less emphasis on the frustration argument. The CEO argued that rather than frustration causing the contract to be terminated, the continuation of the employment was not permissible as it would have amounted to illegality.

On appeal, the FWC agreed with the CEO.  In a short judgment (seven paragraphs in total!) it found that:

  • Mr M’s continued employment would have been illegal due to the operation of the Child Protection Act and accordingly, the contract was not terminated on the initiative of the CEO; and
  • the continuation of Mr M’s employment was inconsistent with the new legislation meaning that the CEO had not ‘dismissed’ him (irrespective of whether it was fair or not).

What does this mean for employers?

This decision means that employees who are subject to criminal proceedings under child protection laws may see their employment legally terminated where those laws make it illegal for their employment to continue. Although the FWC decision in this case was made in relation to NSW child protection laws, the decision might operate as a precedent for FWC decisions where other State or Territory child protection laws apply.

The case also provides a precedent for organisations who choose to terminate an employee’s contract on the basis that they are ineligible to be employed under legislation, or that continuing their employment would be illegal or inconsistent with legislation. Organisations should however keep in mind that the FWC did suggest at first instance that the termination did constitute unfair dismissal as the employee could have been reassigned to work that was not child-related.


Court of Appeal overturns $2.2 million Workers’ Compensation payout

The NSW Court of Appeal has overturned a decision of the NSW Supreme Court to award $2.2 million in damages to a security guard who was injured at work. The employee was awarded the sum after he slipped at work and injured his lower back and his employers were found liable.

There was no dispute as to whether the employee fell at work and significantly injured his lower back, or that he was owed a duty of care by both the occupier of the work site Patrick Stevedores (PS) and his employer FBIS.

However PS and FBIS, who shared payment of the sum, both submitted that they not acted negligently and were not at fault.

The facts

The worker had been patrolling the PS site at night in March 2005 and returned to the demountable guardhouse where the security guards were stationed. It had been raining and the area around the gatehouse was wet. When the worker stepped up into the gatehouse he slipped and fell, injuring his lower back.

The worker commenced proceedings four years later alleging that he was entitled to damages for a breach of the duty of care owed to him by both FBIS and PS. He contended that the step from the ground up into the guardhouse was too high and that there should’ve been measures to prevent the step from becoming wet during inclement weather.

Importantly, since the accident, PS had installed an intermediate step and an awning at the entrance to the guardhouse to prevent the same accident occurring again.

According to the injured employee, the changes made by PS were reasonable precautions that should’ve been taken before his accident and would’ve prevented his fall, thus justifying his negligence claim.

The Court’s original decision

The Supreme Court was satisfied that PS and FBIS were negligent in failing to inspect the work site and guardhouse to determine its suitability as a place of work. Justice Campbell attributed the risk to which the employee was exposed (the risk of slipping while entering the guardhouse in wet weather) to the ‘awkward’ height of the entrance step and the slippery nature of the doorway when wet.

The appeal decision

The Court of Appeal concluded that the worker had failed to establish negligence on the part of PS and FBIS. This was decided by examining the trial judge’s ruling on:

  • the ‘reasonable’ precautions that should’ve been taken;
  • the height of the step that caused the fall; and
  • the application of the Civil Liability Act 2002 (NSW) (Act).

‘Reasonable’ precautions

The Court of Appeal took issue with Justice Campbell’s finding that an intermediate step and an awning were reasonable precautions to take with respect to the risk of stepping up into the guardhouse during wet weather.

A reasonable person in the position of PS or FBIS would not have identified that the height of the step a risk factor and would not have thought to put in an intermediate step to mitigate the risk.

The Court made the point that stepping from any surface to another can be dangerous but most able-bodied people do so every day as they climb stairs, board buses and enter homes or other buildings without injury. Leeming JA said that ‘the mere fact of a fall on wet steps is not sufficient to establish that an occupier has been negligent’, and that stairs are inherently dangerous.

The Court held that ‘the evidence did not establish that a reasonable person in the position of either appellant would have identified the height of the step as a risk factor which required the construction of an intermediate step.’

Uncertainty of the height of the step

Due to the passage of time between the accident and the court proceedings and there were evidentiary issues when assessing the suitability of the height of the step.

However importantly, the Court held that even though PS installed an intermediate step in the time since the accident, this action did not provide evidence that this was a reasonable precaution that should’ve been taken previously.

What does this case mean for workplace safety?

The message here is two-fold: accident-free work environments are a fallacy and appeals can be worth it.

Employers can take some comfort from the Court’s finding on the basis that that when an employee injures themselves at work, it does not automatically result in a breach of duty of care.

It is impossible to have a risk-free and incident-free work site as accidents will inevitably happen. This case reminds employers that they need to be aware of their obligations under the relevant legislation to remove foreseeable, not insignificant risks by taking reasonable precautions.

The Court confirmed that employers should not be afraid of making improvements to the work site because acting to prevent or mitigate risk proves that a risk was present. Fixing risky areas where accidents have occurred is not, according to the Court, proof of fault for those accidents.

This case also demonstrates that an appeal process can be worthwhile for employers who believe that they have not breached their duty of care. Going to court can be daunting and extremely expensive, however where employers have evidence of a WHS program, and documents showing WHS audits, risk assessments, inspections and staff training, it may be a viable option for those who believe they were not at fault.

ASIC fires compliance warning at responsible entities and superannuation trustees

ASIC has fired a warning to responsible entities (REs) and superannuation trustees highlighting various compliance issues following recent surveillance activities.

Perhaps most importantly for REs, ASIC found notable concerns regarding:

  • the adequacy of internal processes;
  • failures to comply with established internal procedures;
  • inconsistencies between funds’ governing documents and internal policies; and
  • inadequate record keeping to demonstrate compliance with licensee obligations.

Responsible Entities

Taking a closer look at the RE sector, ASIC highlighted three key compliance concerns.

Disclosure and Advertising Materials –  As part of its surveillance, ASIC found more examples of misleading or deceptive marketing materials. ASIC’s current focus on advertising materials seems to be a common trend across the financial services sector in general, although ASIC seems to think that the problem within the RE sector was exacerbated by the absence of effective controls over the authorisation and review of promotional materials.

So, what is an effective control according to ASIC?

In the first instance the regulator expects that licensees “develop, maintain and comply with documented processes”. These processes should include methods to review and approve advertising material to ensure that they fully comply with legal requirements and best practice.

This sounds straightforward enough but the objective test of whether certain material is misleading and deceptive, coupled with the rapid expansion and availability of media tools used to communicate marketing messages (Facebook, LinkedIn, YouTube, Twitter etc), has made the management of risks in this area even more challenging.

In practice, documented policies alone won’t be enough. Additional controls are required such as ongoing training for any representative involved in the communication of information to ensure that the documented processes are clearly understood and followed. This should be an ongoing training procedure and not a ‘train and forget’ approach.

Compliance Deficiencies – Secondly, and perhaps more worryingly, ASIC highlighted a range of deficiencies in compliance and governance frameworks, including:

  • inadequate internal processes;
  • failures to comply with existing internal processes;
  • inconsistencies within organisational frameworks; and
  • a lack of adequate record keeping.

It is not clear whether these failures related to scheme compliance issues or whether the weaknesses were in relation to overall compliance controls, including non-scheme controls. It is an important distinction as the adequacy of scheme compliance is subject to various tests including, of course, external audit. Any weaknesses identified by ASIC which also relate to scheme compliance would presumably also point to weaknesses in external auditing.

Published Returns – Thirdly, there were inconsistencies between the returns information provided by certain REs and the returns published by third party data aggregators. ASIC reiterated that all licensees are expected to have periodic reconciliation controls on returns to prevent the occurrence of material discrepancies.

Next steps for REs

ASIC expects licensees to document their compliance measures, fully implement them, monitor and report on their use, regularly review the effectiveness of these measures and ensure they are up-to-date. In ASIC’s view, failure to do this will make it more difficult to comply with the general obligations and to demonstrate compliance with them.

As a result of its surveillance activity ASIC also directed some REs to make changes to their risk management arrangements and implement additional measures to monitor the reporting of returns.

It is a challenging time for the sector and, as covered in previous blogs, REs are still waiting for more prescriptive guidance on risk requirements for the sector, via proposed Class Order and ASIC Regulatory Guides. It is not clear when these enhanced RE risk requirements will become effective, particularly as the draft requirements were first due to be released in August 2013.

How can CompliSpace help?

In summary, ASIC expects REs to have up to date policies and procedures and a system of assurance to monitor and report on compliance performance. This is the model on which our core services are delivered, providing REs with tailored content, tools and services designed to meet these ASIC expectations and requirements.

For more information on how we can help contact James Cozens, Director Commercial, on 02 9299 6105 or email contactus@complispace.com.au.

Financial Services Update: Fraudulent services provided by AFSL holder lead to tragedy

In this edition:

  • Fraudulent services provided by AFSL holder lead to tragedy;
  • Sustainable investments are more important than ever; and
  • September is the last month for transitional arrangements for financial adviser register.

Fraudulant services provided by AFSL holder lead to tragedy

In June this year, the Executive Chairman of Oceanic Asset Management (OAM) David Jones and his wife Jeanette took their own lives leaving a suicide note admitting they had been defrauding investors for years.

OAM holds an Australian Financial Services licence and is licensed to provide funds mangagement advice to wholesale clients. According to ASIC, OAM appears to have been operating a number of unregistered managed investment schemes.

The Joneses ran Mulato Nominees out of the same office building as OAM, a company marketed as a ‘highly successful private investment company specialising in unearthing investment opportunities at the smaller end of the Australian quoted market, predominantly resources orientated’.

The Joneses defrauded numerous UK-based investors who had put their life savings through Mulato Nominees and associated companies.  The local press reported that in the suicide note found at their home in Perth,  the couple said that they had tried to overcome the losses they had caused in the hope of a recovery, but this was without success and they could not live with the guilt and shame. It was also reported that as recently as 2014 Mulato was described as a ‘$100 million private investment company’.

ASIC has successfully applied to the Federal Court under the Corporations Act 2001 (Cth) to have a provisional liquidator appointed to OAM, Mulato and four other associated companies linked to Jones’ fraudulent activity.  The Federal Court’s judgement referred to previous case law which establishes that the appointment of a provisional liquidator is  a ‘drastic measure’ but one that may be required to preserve the status quo.

In a media release, ASIC attributed the application as a result of concerns arising from complaints made to the regulator and the West Australian Police Services Major Fraud Squad by a large number of UK-based investors.  ASIC is currently investigating various breaches of the Corporations Act by OAM and the other five companies, including the making of false or misleading statements and engaging in misleading or deceptive conduct.

Theft and fraud offences under the Criminal Code Compilation Act 1913 (WA) are also being investigated.

In the Federal Court, ASIC also successfully obtained asset preservation orders and the appointment of a Trustee to the deceased estate of Mr Jones. This will come as a relief to UK couple Thomas and Lynda Briers who lost more than $1 million after they were conned by the Joneses and took issue with relatives of the family keeping ill-gotten gains such as luxury cars and jewellery.

While ASIC and the ATO continue to investigate the affairs of OAM and associated entities, the appointment of the provisional liquidator will  protect the interests of shareholders, investors and creditors.

Sustainable investments are more important than ever

An increase in the number of reports and initiatives in the past year that focus on environmental, social and governance (ESG) scores of financial institutions reflects the increasing importance of sustainable investment in the financial sector.

ESG scores for global managed funds

In line with this trend, Morningstar, a leading independent investment research group that provides research for stocks, funds, EFT’s, credit and LIC’s, has announced that it will launch the industry’s first ESG scores for global managed funds and exchange-traded funds.

The research house also provides financial data, news, and investing articles for North America, Europe, Australia and Asia and it will base its new scores on ESG company ratings supplied by Sustainalytics for release later this year, applauding Morningstar for its innovation.

The two research groups will work together to release the new fund scores in the fourth quarter of 2015. The combination of the groups’ portfolios will allow Morningstar to create asset-weighted composite ESG fund scores based on company-level Sustainalytics ESG ratings.

Morningstar Director of Manager Research – North America, Jon Hale, has said that ESG ratings will bring more transparency and accountability to the investment industry.

Sustainable Investing

Investors are placing more importance on ESG policies and practices. The Morgan Stanley Institute for Sustainable Investing released a study in February this year that found that 71% of individual investors are interested in sustainable investing and that this type of investing doesn’t require financial sacrifice.

There has also been a 29% increase in the past year in the number of financial institutions that have signed the UN-supported Principles for Responsible Investment Initiative, bringing the total to almost 1,400 firms, managing in excess of $59 trillion, joining together to promote responsible investment.

The new ratings are said to, for the first time, provide investors with a fund comparison across categories, relative to benchmarks, and over time using ESG factors with the ability to examine the scores for the environmental, social and governance pillars. Also, investors will be able to ‘drill down’ to see scores for each of the three pillars.

September is the last month for transitional arrangements for AFS licensees

Transitional arrangements allowing AFS licensees to ensure that their financial advisers’ and authorised representatives’ details are up to date will end on 30 September 2015. From 1 October 2015, new fees and notification periods will apply for updating or changing the details of AFSL financial advisers and authorised representatives.

This will mean that AFSL holders from October this year will have no more than 30 business days from the effective date of change to notify appointments or updates. In addition, AFSL holders will have to pay a fee of $29 to do so and late fees of up to $312 will apply to those who fail to make a notification within the 30 day period.

Also from 1 October, AFSL holders will be able to notify ASIC of all changes for representatives online. This means that licensees will no longer need to use paper forms to:

  • update addresses for authorised representatives;
  • nominate a business name for authorised representatives;
  • update representative names and ABNs for authorised representatives and financial advisers; or
  • cease an authorised lodger so they can no longer lodge for a licensee or authorised representative.

Licensees should take advantage of the transitional arrangements and ensure their details are correct before September 30.

More information is available on the ASIC website.


ASIC identifies key risks for business in 2015-16 

While the ASIC Corporate Plan for the next 3 years may not be everyone’s page-turner, the Plan contains important issues affecting all businesses. This blog highlights the key risks ASIC identified in their Corporate Plan 2015-16 to 2018-19 (Plan), which should act as a road map of emerging risk and compliance issues which all organisations should be considering at their next board, risk or compliance meeting.

The Plan lists what ASIC perceives to be the key drivers of risk to investors, financial consumers and the markets it regulates. Although ASIC acknowledges that there are some drivers of risk that it can’t influence, the regulator’s proactive approach to risk identification and management should serve as a guide for other organisations on what risks they should identify and consider how to manage, in 2015-16.

Poor culture and gatekeeper responsibility

ASIC identifies poor culture, resulting in lack of transparency and chronic under-pricing of risk, as a key risk for 2015-16, and the Plan references this risk as one of the causes of the 2008 global financial crisis.

ASIC’s focus on improving corporate culture has been discussed in previous blog posts (here and here). The Plan reinforces ASIC’s view that culture is a ‘gatekeeper’s underlying mindset’ (meaning culture comes from the top of an organisation) and notes that risk management systems can help encourage good culture in an organisation by influencing compliance and reinforcing good, or bad, corporate behaviour. The Plan lists the following areas as having poor gatekeeper culture:

  • responsible entities;
  • lenders;
  • markets; and
  • directors, auditors and insolvency practitioners.

In its Plan ASIC sets out actions for how it intends to respond to the risks posed by poor gatekeeper culture in those areas, such as incorporating culture and incentives more explicitly into its risk-based surveillance reviews. Those actions are in addition to other initiatives ASIC has previously proposed to tackle poor corporate culture, such as the introduction of civil penalties to apply to theCorporations Act provisions that it administers (see our earlier blog).

Misalignment between retail products and consumer understanding

The Plan also highlighted current issues with the design and distribution of retail financial products and consumer understanding of those products. ASIC’s concern about the disadvantages caused to retail investors and financial consumers as a result of that misalignment means that improving the advertising practices of those products is a key focus for 2015-16.

ASIC referenced research that suggests that people confronted with uncertainty, as is the case with some complex financial products, tend to misjudge probabilities and risk. This can lead to serious long term harm where a consumer lacks adequate understanding of the products they are buying. Consumers can be vulnerable and may exhibit behavioural biases. These traits are exacerbated if the retail products are disclosed or marketed in a misleading or deceptive way or if consumers are given unrealistic expectations.

ASIC has implemented several financial literacy initiatives to help equip consumers with the requisite knowledge to make informed decisions about financial products. They include ASIC’s MoneySmart website, the National Financial Literacy Strategy and ASIC’s desire to have financial literacy included in the Australian curriculum. In addition, ASIC is working to identify ‘inappropriate products’ and remove them from sale, such as retail over-the-counter derivatives or add-on insurance products.

Cyber-attacks: are you prepared?

ASIC will focus on the importance of cyber-resilience in 2015-16 to promote trust and confidence in the financial system and market integrity. As the recent Ashley Madison data hack demonstrated, when a breach of cyber-security and privacy occurs, it can have devastating consequences for an organisation, its clients and other members of the community.

In the case of the financial services industry, cyber-attacks can also have serious financial repercussions for its participants.

The increase in the number, sophistication and complexity of cyber-attacks presents a constantly changing risk for all organisations, including ASIC. It is estimated that in 2013, cyber-attacks affected five million Australians at a cost of $1.06 billion. The cost and scale of these attacks is projected to increase in the future.

Although ASIC acknowledges that it is impossible for firms to anticipate and be protected from every cyber-attack, it has created a Markets Cyber-Risk Taskforce to establish practices that will help protect the market.

ASIC’s focus on the risks presented by cyber-attacks is a reminder for all organisations to be proactive about incorporating the risk of a data breach in their risk registers as part of their risk management and compliance programs. The recent increase in the popularity of cyber-insurance policies emphasises the different types of risk management techniques companies can use to help improve their cyber-resilience and manage the fallout of a cyber-attack.

Improving cross-border regulation

Globalisation has led to an increase in cross border activity, competition and integration. It is estimated that 45% of Australian equities are held by foreign investors and that Australian investment abroad was at $2.1 trillion in the March quarter of 2015. This represents a 23% increase in one year.

Although this level of overseas investment can increase productivity and investment overall, cross-border integration can increase operating costs and complexity for businesses. In order to reduce costs to businesses, ASIC will work with Australian and overseas regulators to implement G20 commitments to streamline regulations between jurisdictions. One initiative highlighted by ASIC is the continued development and implementation of the Asia Region Funds Passport, which APEC reports could save investors $27.4 billion annually in fund management fees and create 170,000 jobs in APEC economies within five years.

ASIC’s Plan a reminder of the importance of Enterprise Risk Management

Although managers can’t predict future events, ASIC’s Plan provides a selection of likely risks which may crystallise sooner rather than later. On this basis, there is no excuse for managers who fail to take proactive steps now to prepare their organisations for the impact of these events. An organisation may be disadvantaged competitively if they are not employing and practicing risk management methodologies and practices such as those promoted by enterprise risk management (ERM) policies and procedures. Managers should also be aware of the formal risk management principles(usually referenced in Australia to the ISO 31000 standard), which are key implements in any risk management toolbox.

Organisations that are effectively practicing ERM are gaining significant competitive advantages, and the executives behind these ERM programs are finding themselves in increasing demand.

See our earlier articles on ERM tools and techniques to understand how your organisation can stay on top of emerging risks – and potentially avoid ASIC surveillance.

ABN to replace ACN and TFN in 2016

In its Plan ASIC re-iterated its previous commitments to cut red-tape by removing redundant or unnecessary regulations which have little practical benefit.

The recent Treasury announcement of legislative amendments to consolidate the ACN, TFN and ABN schemes after 1 July 2016 is one example of a combined practical red-tape reduction effort by ASIC, the Federal Government and Australian Tax Office.

Legislative amendments required

The Treasury released an exposure draft of the Treasury Legislation Amendment (Spring Repeal) Bill 2015 on 28 August 2015 which proposes amendments relating to superannuation, corporations and taxation.

The Bill will amend the Corporations Act 2001 (the Act) and the A New Tax System (Australian Business Number) Act 1999 to make the Australian Business Number (ABN) the single numerical identifier for companies registered under the Act from 1 July 2016. Also, taxation laws will be amended to allow an entity with an ABN to use that number instead of a TFN.

What do the changes mean?

The changes will only operate prospectively, meaning that only companies that register under the Act from 1 July 2016 onwards will be issued with an ABN as their single numerical identifier and will not be given an ACN by ASIC.

Existing companies will retain all current numerical identifiers and will not be required to apply for an ABN if they do not have one, however, from 1 July 2016, companies registered under the Act will no longer be permitted to use their ACN as their name. New companies registered after this date will be able to use their ABN in their name.

These changes will not only make it easier for new Australian companies to meet their registration requirements, they will also reduce the legal and regulatory requirements for international entities seeking to do business in Australia.

The Explanatory Material for the Bill provides more insight about how the old and new registration regimes will operate.

Impetus for change

These amendments come as part of the Federal Government’s commitment to its deregulation agenda.

In the 2015-16 Federal Budget, the Government announced measures to make it quicker and easier to register a new business as part of the Growing Jobs and Small Businesses package. Reducing the number of numerical business identifiers is the first step as a part of this package.

The amendments will ensure that an entity that has an ABN may use it as their only Commonwealth-issued numerical identifier and will not be required to also have a TFN.

These changes will reduce the administrative red-tape for businesses and hopefully there are similar initiatives to come in 2015-16!


24 August 2015: Workplace Relations Update for Executives On-the-Go

In this edition:

  •  Fair Work Commission issues another (rare) ‘stop bullying’ order;
  • ‘Repair, Not Replacement’: Productivity Commission  Draft Report; and
  •  Employee unsuccessful in compensation claim following party held at    employer’s premises

Fair Work Commission issues ‘stop bullying’ order

The Fair Work Commission (FWC) has issued another of its very rare ‘stop bullying’ orders, a power it was given in January 2014, to make anti-bullying findings and orders. While the vast majority of claims made to the FWC are conciliated at an early stage, the few matters that have made it to a hearing have led to decisions which identify what does not constitute bullying within the FWC’s purview. The most notable of these is that the FWC will only consider matters where the bullying is still ongoing, and it is work-related.

This new case appears to be a textbook illustration of what constitutes bullying.  It also illustrates the multi-pronged approach that the FWC uses to ensure that the bullying is stopped and does not recur in that organisation.

In this case the parties have not been identified; their anonymity was agreed as the parties supported the outcome, it ensured their acceptance of the admission, and the anonymity was conducive to the resumption and continuation of ongoing working relationships between the applicants and the employer.

The application

There were two applicants, both employees at a small real estate business. They alleged that there had been several instances in which a manager engaged in bullying conduct. The behaviour was said to include:

  • belittling conduct;
  • swearing, yelling and use of otherwise inappropriate language;
  • daily interfering and undermining the applicants’ work;
  • physical intimidation and ‘slamming’ of objects on the applicants’ desks;
  • attempts to incite the applicants to victimise other staff members; and
  • threats of violence.

The employees raised concerns about the conduct of the manager with the employer, and these concerns were the subject of an informal investigation and an attempted workplace mediation. The manager subsequently resigned with the support of the employer, but took up a position in a related company with the potential for future interaction with the applicants.

The employer contended that at least one of the applicants was provided with the opportunity to put their allegations in writing and failed to do so. In addition, the employer stated that the allegations were denied or substantially qualified by the manager and that the applicants have acted unreasonably in certain respects.

The orders

An order in relation to workplace bullying may only be made by the FWC where it finds that there is a risk of the bullying continuing.

Commissioner Hampton found that there was sufficient evidence that there had been “workplace culture where unprofessional and unreasonable conduct and interactions had taken place and that such had created a risk to the health and safety of a number of the workers involved”. As such, the applicant workers were found to have been bullied within the meaning of s 789FD of the Fair Work Act 2009 (Cth) (the Act).

The stop bullying orders contained two main elements: firstly, the applicants and the former manager must not approach each other or attend the other’s business premises. Secondly, a number of initiatives have been ordered to improve the culture of and conduct within the workplace.Significantly, Commissioner Hampton ordered the employer to implement anti-bullying measures in order to prevent similar instances from occurring: this includes the establishment and implementation of anti-bullying policies, procedures and training, as well as clarifying reporting arrangements.

Warning for Employers.

This matter emphasises the importance of creating and promoting a positive and safe workplace culture. Employers should ensure that they have training and policies in place, including reporting procedures,  to prevent and manage any potential instances of bullying in the workplace.

‘Repair, Not Replacement’: Productivity Commission Draft Report

The Productivity Commission (PC) has released its first draft report on Australia’s workplace relations framework, concluding that there are several deficiencies that need to be addressed. Overall, the PC found that the workplace relations framework was “not dysfunctional” but was in need of repair. The PC’s general concerns include that the current system is overly legalistic, and at times has too great an emphasis on procedures over substance.

Submissions are welcome in response to the draft before 18 September and the final report is due in November.

Recommended changes

The Report contains a broad range of recommended changes. Some key areas targeted for change include:

  • structural changes to the FWC;
  • enterprise bargaining;
  • unfair dismissal;
  • awards and minimum wages; and
  • industrial action.

Structural changes to the FWC

The Report contains the following recommendations regarding the FWC:

  • the establishment of a Minimum Standards Division and Tribunal Division;
  • a new process for appointing members of the FWC;
  • creation of a process to ensure adequate resourcing to assist the FWC to cope with emerging ‘hot spots’ (e.g. problems for 417 visa holders); and
  • Publication of more detailed information about conciliation outcomes and processes, as well as an independent performance review of the processes and their outcomes.

Enterprise bargaining

The PC has made several key recommendations in the Report concerning the enterprise agreement process, including:

  • allowing the FWC to have more discretion to approve an agreement with a procedural defect which poses no risk to employees;
  • replacing the ‘better off overall test’ with a new ‘no-disadvantage test’;
  • permitting individual flexible arrangements to deal with all the matters listed in the model flexibility term and any additional material agreed to by the parties;
  • allowing an enterprise agreement to specify a nominal expiry date that can be up to 5 years or matches the life of a greenfields project;
  • applying good faith bargaining requirements to greenfields negotiations; and
  • requiring individual (non-union) bargaining representatives to have the support of at least 5% of the workforce.

The PC has also looked at individual agreements and has recommended that:

  • the Fair Work Act 2009 (Cth) should specify that the default termination notice period should be 13 weeks, but in the negotiation of an agreement, employers and employees could agree to extend this up to the new maximum;
  • a new ‘no-disadvantage test’ should replace the ‘better off overall test’ for assessment of individual flexibility arrangements; and
  • the FW Ombudsman should develop an information package on individual flexibility arrangements and distribute it to employers, particularly small businesses, with the objective of increasing employer and employee awareness of individual flexibility arrangements.

In addition, the PC is seeking feedback on the creation of an ‘enterprise contract’, which would “vary an award for entire classes of employees… without having to negotiate with each party individually or to form an enterprise agreement’.

Unfair dismissal

The Report also contains the following recommendations in relation to the unfair dismissal regime:

  • greater discretion for the FWC to consider unfair dismissal applications ‘on the papers’ before conciliation or a more merit focused conciliation process;
  • no compensation for employees where there was reasonable evidence of persistent under-performance or serious misconduct;
  • remove the possibility for reinstatement or compensation on the basis of procedural errors in termination (financial penalties may still apply);
  • remove the emphasis on reinstatement as the primary goal in unfair dismissal cases; and
  • remove Small Business Fair Dismissal Code.

Awards and minimum wage

The PC has made numerous recommendations in this area, including applying the same penalty rates for Saturdays and Sundays for those working in hospitality, entertainment and retail and tightening up requirements to reduce the incidents of sham contracting (where employers misclassify employees to minimise their entitlements). It also recommended a review of apprenticeships and traineeships.

Why is this significant for employers?

If the federal government chooses to adopt these recommendations, it will form the basis of its workplace relations policy in the lead-up to the 2016 election. Going beyond the realm of government policy, the PC added that current issues could also be explained by poor management, as opposed to structural issues with the formal framework. On this basis, employers should ensure that they are effectively managing all workplace issues and ensuring that their conduct complies with the current law.


Employee unsuccessful in compensation claim following party held at employer’s premises

The NSW Court of Appeal (Court) has decided that  an injury sustained by an employee at a function on work premises (but held after normal work hours) was not in the course of her employment. The Court found that an employee’s subjective opinion that she was expected by her employer to go to a function after her work had finished for the day, did not outweigh the contrary position held by the director of the company, her immediate supervisor, and other employees, that attending was not a work requirement.

The facts

In early March 2004 the appellant, Kathryn Hills, began working at Pioneer, a business which provided studio space and rented out photographic equipment mainly for the fashion industry. Jennifer Martel, the employee in charge of training Ms Hills, told her that another employee, Alistair Buchanan, was hosting a party on Saturday 13 March 2004. Mr Buchanan had approached the director of the business to use the space as a joint birthday party for himself and his two roommates. The director suggested that Mr Buchanan also have the party as a farewell, as he was about to leave the business.

Pioneer had no role in organising or inviting guests to the party. Ms Martel said that it would be “a nice idea” to go to the party “in order to meet the other employees”, as employees generally did not have opportunities to see each other in the course of the business. Ms Hills believed that the party was a work function and made a statement that “I felt that it was important for me to be at the party.” At 2:30 am on Sunday 14 March, Ms Hills fell over a balustrade when leaving the party and sustained serious injuries. After some months of treatment, Ms Hills was able to return to work, though she did not return to Pioneer.

Ms Hills made an application for worker’s compensation under the Workplace Injury Management and Workers Compensation Act 1998 (NSW) on the grounds that her injury was one that “arose out of or in the course of employment”.

The law

Attending a social event after work hours is an area which has a a large body of cases which do not provide a clear direction for employers, as to the limits of their responsibility.

The law is clear that the employment must be ” a substantial contributing factor” to the injury. In assessing an injury which occurred after normal work had finished, the courts have been looking at the relationship between the  employment and why the employee was in the place where the incident occurred,  and what activity they were engaging in at the time. Did the employer induce or encourage the employee to engage in that activity?

Quite a few cases over the years demonstrate that if an employee is on a work trip then many of the activities they engage in would be considered in the course of employment, as they would not be there if it were not for the requirement of the employer. This approach has been pushed to the extent that an employee who was working at a work camp at a remote location, who was encouraged by his employer to go sightseeing using work vehicles in between shifts, and who was subsequently injured, was covered by workers compensation.

However, much to the relief of employers, in the recent highly-publicised case of an injury incurred during sex.. while on a business trip, the High Court established that merely being at a location required by the employer, such as a business trip or a conference, did not make every activity the employee engaged in until their return, ” in the course of the employment”.  The High Court took a common sense approach finding that the employer’s expectations and requirements of the employee while they were away was the determining factor. We can expect that a normal employer would expect an employee away for a conference or business trip would stay in a hotel and eat meals, but would not normally induce or encourage them to be quite so friendly as part of their employment.

In this case the Court looked at to what extent the employer expressly or impliedly induced or encouraged the employee to attend the social function after normal work had finished, rather than what the employee thought she was expected ore required to do.

The findings

Ms Hills argued that she was induced to attend the party by Ms Martel or the director, and the injury was therefore causally connected to her work. However, the majority of the Court held that the fact that she was encouraged or induced to attend the party was not sufficient to render it part of her employment, when the company director, her supervisor, and the other employees who attended, clearly understood that it was not a work function and that attendance was purely voluntary, and in fact by invitation issued by someone other than the employer.

What it means for employers

Employers should be aware that their liability can extend beyond the hours in which the employee is engaged exclusively in work related activities. Work social functions or attending client functions where the employer expected the employee to attend, are likely to be considered “in the course of employment”. Employers should have reasonable policies to address safety issues in those matters, such as alcohol policies, and ensuring the employee is able to get home safely.

An employer’s liability is also quite broad when dealing with an employee who is away on a work trip, so they should consider safety aspects of  transport, accommodation, and meals.  However, as this case illustrates, where an employee who works regular hours and  returns home at the end of the day, an employer should bear in mind that if they suggest an employee attends an after- hours function, it would be a good idea if the employer lets the employee know whether their attendance at a function is expected as part of their work responsibilities, or whether their attendance  is purely voluntary, on a “nice to do ” basis.


Financial Services Update: Don’t be afraid of breach reporting

In this edition:

  • Dont be afraid of breach reporting;
  • ASIC enforcement report; and
  • New digital disclosure measures.


Don’t be afraid of breach reporting

ASIC Commissioner Greg Tanzer has emphasised that financial services firms should not be fearful of reporting breaches. In fact, the Commissioner has said that ASIC understands that it is normal for a certain number of breaches to occur and therefore firms with an empty breach reporting log are far more likely to attract attention.

It’s believed that recent media reports including those related to IOOF allegedly breaching their reporting obligations by not issuing warnings to senior staff, may be prompting some firms to under-report or to at least equivocate their logs.

ASIC released further guidance on breach reporting in May to remind all AFS licence (AFSL) holders that they must notify ASIC in writing of any ‘significant’ breach (or likely breach) of their obligations under sections 912A and 912B of the Corporations Act 2001 (Cth) (Corporations Act) as soon as possible, or within 10 days of becoming aware of the breach or likely breach. The regulatory resource also clarified what a ‘significant’ breach was and which forms a licensee needs to fill out.

Whether a breach is significant will depend on individual circumstances however factors which can help to determine that a breach is ‘significant’ include the:

  • number or frequency of similar previous breaches;
  • impact of the breach or likely breach on the licensee’s ability to provide the financial services covered by the licence;
  • extent to which the breach or likely breach indicates that the licensee’s arrangements to ensure compliance with those obligations is inadequate; and/or
  • actual or potential loss to clients or the licensee itself.

In case of doubt, ASIC encourages AFSL holders to report a breach, using form FS80 or a written report sent to ASIC.

Penalties apply for not reporting significant breaches, or not reporting them within the required time frame and there are no viable excuses for not doing so, according to ASIC’s Regulatory Guide 78(Breach reporting by AFS licensees).

Once a report has been made to ASIC, determining the consequences of the detected breach/es becomes a matter for the reporting licensee and ASIC. As demonstrated by the recent National Australia Bank (NAB) and IOOF cases, these reports, when not done correctly or in a timely manner, can result in adverse media coverage and reputational repercussions.

Commissioner Greg Tanzer has said in relation to the NAB investigation that ‘it is important for entities to ensure that, where errors do occur, that they are identified as early as possible and appropriately rectified.’

Enforcement report

ASIC released Report 44 (Report) last week outlining the enforcement outcomes it has achieved during the first six months of 2015. The report gives a high-level overview of ASIC’s enforcement priorities, primarily tackling poor culture, and it also highlights important decisions made by the regulator in the first half of 2015.

From 1 January to 30 June, ASIC has achieved a total of 323 enforcement outcomes including criminal and civil and administrative actions. Ten individuals were charged with a total of 82 criminal charges and 25 individuals were banned from the financial services or credit industries during this period.

ASIC’s three current enforcement priorities are:

  • tackling poor culture;
  • retail margin foreign exchange trading; and
  • illegal phoenix activity.

Tackling poor culture

The Criminal Code Act 1995 (Cth) defines ‘culture’ as including attitude, policy, rule and course of conduct or practice. ASIC focuses on culture because it’s a key driver of conduct in the financial services industry, and ASIC’s Commissioner Greg Tanzer has disclosed that culture will remain a major priority over the next six months and beyond.

Poor culture can generate costs for businesses including remediation or compensation costs, fines and costs associated with damaging a business’ brand or reputation. The Report suggests a fundamental shift in the culture of the financial industry to developing a culture that focuses on achieving and rewarding good conduct and outcomes for customers, as issues with poor advice and mis-selling of financial products to consumers are all too common. We’ve previously published an article which details how organisations can improve culture, identifying the ‘3 C’s’ framework on culture risk: communication, challenge and complacency.

ASIC’s recent remediation work to improve culture includes working with an organisation to ensure that consumers who have suffered loss due to systematic failures within that organisation are compensated appropriately. Of note is the case where Australia and New Zealand Banking Group (ANZ) refunded $75 million to approximately 235,000 customer accounts after overcharging interest repayments for mortgage accounts.

Retail margin FX trading

The risk of retail margin FX trading comes from the ability of investors to trade with borrowed money and most FX trading products are highly leveraged meaning that the investor only has to pay a fraction of the value of the trade upfront.

Despite the risk, an increasing number of businesses have applied for an AFSL to set up and operate these retail margin FX broker businesses and over the last 12 months, ASIC has shut down, suspended, restrained and cancelled the licences of numerous organisations in Australia. For example, the cancellation of Rainbow Legend Group Pty Ltd ‘s AFSL after an ASIC investigation found that the company had:

  • falsely promoted, on a number of websites, a non-existent insurance compensation scheme for clients of up to $2.5 million;
  • used ASIC’s logo on its websites leading clients to wrongly believe that the company was endorsed or approved by ASIC; and
  • failed to comply with a number of reporting obligations including EOFY financial statements and auditor’s reports.

Illegal phoenix activity

Phoenix activity generally involves current or previous directors of an indebted company intentionally and dishonestly transferring assets of that company to a new company to avoid paying creditors, tax or employee entitlements. This kind of illegal activity leads to high costs for the Australian economy (estimated between $1.78 and $3.19 billion each year).

To combat this illegal activity, ASIC revealed in the Report that they’ve taken the following action:

  • the construction of an industry statutory declaration campaign;
  • the creation of proactive phoenix and registered liquidator surveillance programs;
  • joined the Australian Tax Office (ATO)’s new Phoenix Taskforce;
  • made submissions to the current Senate Inquiry into Insolvency in the Construction industry; and
  • made submissions to the current Productivity Commission Inquiry into business set-up, transfer and closure.

More to come

ASIC has been busy over the last six months.  It has:

  • commenced 136 investigations;
  • completed 137 investigations;
  • brought 82 criminal charges (some of which resulted in jail time);
  • banned 25 individuals;
  • accepted six enforceable undertakings; and
  • disqualified 19 directors;

However, Commissioner Tanzer  says there is more to come. The Commissioner said in an ASIC media release regarding the Report that ‘ASIC is committed to holding those who intentionally break the law to account so that trust and confidence in our financial services industry and markets is strong’.

ASIC is planning to incorporate examinations of culture into their role as regulator. Examinations of culture will be included in their risk-based surveillance reviews and the findings will be used to better understand how culture is driving conduct.


ASIC introduces digital disclosure measures to facilitate financial services delivery

New ASIC guidelines and relief instruments enable businesses to digitally communicate important information to financial services consumers. Regulatory Guide 221 Facilitating digital financial services disclosure was introduced in July 2015 and aims to remove previous barriers to electronic disclosure and facilitate innovative uses of technology in the delivery of information to consumers. The changes remove legal and legislative barriers in order to:

  • enable default delivery of digital disclosure; and
  • allow for more innovative forms of product disclosure statements (PDS), FSGs and SOAs.

What are the new guidelines?

ASIC has introduced the guidelines and provided relief via ASIC instruments from various provisions of the Corporations Act to facilitate the use of digital financial services disclosures.

The new guidelines enable businesses to send disclosures to consumers digitally as the default option. The affected types of disclosures include:

  • ongoing disclosures;
  • periodic statements;
  • confirmations of transactions;
  • annual superannuation information;
  • financial services guides and statements of advice;
  • product disclosure statements (PDS);
  • additional information provided by a superannuation trustee;
  • unsolicited offers to purchase financial products off-market; and
  • additional information on request.

Consumers are able to request postal delivery of physical documents if this is their preference. These guidelines aim to facilitate disclosure between businesses and consumers and to encourage innovation in the communication of information about financial products and services. These guidelines will also enable companies to reduce their printing and mailing costs.

What are the effects of the changes?

Under previous regulation, although providers were able to deliver most ongoing disclosures digitally (usually by publishing them on a website and giving a notification), the provider was generally required to agree to this method of delivery with the consumer. As a result, the default method of disclosure remained printed disclosures sent to a postal address.

An estimated 55 million letters are sent to consumers by financial providers as a result of the regulatory regime’s inability to allow the participants to choose the most effective method of disclosure.

This new approach will benefit consumers who do not currently engage with a paper disclosure e.g. renters who move postal addresses frequently.

A disclosure regime that is technology neutral would allow financial service providers to choose the most appropriate method of communication, without unnecessarily limited choice.

The previous regulations maintained the default of printed disclosure on the basis of consumer protection, given that digital communication was a relatively new phenomenon for some consumers. However, given that 92% of Australian adults are online and that 72% of those online undertake financial transactions using the internet, this position no longer reflects the reality of consumer expectations. The benefit provided to the minority of Australians who are not online is no longer justifiable, especially given the burden on providers and consumers. ASIC’s action has removed the unnecessary red tape that prevented digital disclosure.

What is the impact on financial services providers?

ASIC Commissioner John Price stated that ‘ASIC wants industry to harness the opportunities of digitisation and is encouraging the use of more engaging forms of communication’. Mr Price believes that this change ‘can boost consumer understanding of financial services and products’.

With the change in default delivery method, providers can invest in delivery methods that meet the changing demands of consumers, such as interactive apps, videos, games and audio presentations. Given the importance of the duty of disclosure, financial service providers must ensure that they reach out to vulnerable consumers.  Although safeguards are in place to ensure that providers take steps to ensure that the disclosure is delivered, the onus remains on the consumer to ensure that their contact details are updated.

Providers are still required to provide clear, concise and effective disclosure by using a method and form of delivery that best suits their client. These changes enable providers to minimise the costs associated with printed disclosures, but have the broader aim of improving consumer understanding by shifting to a delivery method that suits current consumer needs.


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