ARM’S LENGTH NO MORE: Holding company may be responsible for a subsidiary’s breach of workplace law
HLS LEGAL | October 18, 2017
From 15 September 2017, the new Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (Amendment Act) took effect to amend the Fair Work Act 2009 (FW Act). It is now possible for holding companies to be held responsible in certain circumstances, for the conduct of its subsidiaries where the subsidiaries fail to follow the FW Act. This means a holding company can be ordered to pay a civil penalty where a subsidiary company breaches a listed provision of the FW Act.
Before the introduction of the Amendment Act, the FW Act provided a person may be held responsible for being ‘involved in’ a contravention of a civil remedy provision of the FW Act, even if they are not the direct employer, pursuant to accessorial liability provisions.
While this provision still exists, new provisions have been introduced which provide that a holding company will be liable if it knew, or could have reasonably known, that a contravention of workplace laws by a subsidiary would occur, and did not take “reasonable steps” to prevent it.
Specifically, a holding company will contravene the FW Act if its subsidiary (as defined in the Corporations Act 2001), who is an employer, contravenes a specified civil remedy provision (for example, contravention of the National Employment Standards) and either:
The holding company or its officer (as defined in the Corporations Act 2001), knew, or could reasonably be expected to have known, that the subsidiary company would contravene the provision of the FW Act; or
At the time of the contravention, the holding company or its officer, knew, or could reasonably be expected to have known, that a contravention by the subsidiary company of the same or a similar character, was likely to occur.
A statutory exemption can be claimed by a holding company if it can demonstrate that at the time of the contravention, it took “reasonable steps” to deal with the problem to prevent a contravention by the subsidiary company of the same or a similar character.
Alternatively, if the holding company can provide evidence to show that at the time of the contravention, there were no reasonable steps it could have taken to prevent a contravention by the subsidiary company of the same or a similar character, the holding company may be able to claim the statutory exemption.
In determining whether a holding company took “reasonable steps,” the Court may consider the following list of matters (noting it is not exhaustive):
The size and resources of the holding company;
The extent to which the holding company had the ability to influence or control the conduct of the subsidiary company in relation to the contravention, or a contravention of the same or similar nature;
Any action the holding company took which was directed towards ensuring the subsidiary company had a reasonable knowledge and understanding of the relevant requirements under the FW Act;
The holding company’s arrangements (if any) for assessing the subsidiary company’s compliance with the relevant provisions under the FW Act;
The holding company’s arrangements (if any) for addressing possible complaints about alleged underpayments or other alleged breaches of the FW Act within the subsidiary;
The extent to which the holding company’s arrangements with the subsidiary encourage or require the subsidiary to comply with the FW Act or any other workplace law.
Activities that may constitute “reasonable steps” on the part of a holding company would include, for example, providing subsidiary companies with a copy of the Fair Work Ombudsman’s (FWO) free Fair Work Handbook, encouraging the subsidiary company to cooperate with any FWO audits, auditing companies in the network and establishing a contact or phone number for employees of a subsidiary company to report any potential underpayment to the business.
A holding company which has significant control over a subsidiary may wish to consider conducting due diligence to evaluate the subsidiary’s compliance with the FW Act.
If you have any questions about how the amendments to the FW Act may affect your business, please contact HLS Legal on (08) 9322 5202.
This article is intended to be informative only and does not constitute legal advice. If you are concerned about your individual circumstances, please contact a lawyer.
 Fair Work Act 2009 (Cth) s 550.
 Ibid s 558B(2).
 Ibid s 558B(3).
 Explanatory Memorandum, Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (Cth) 10 para 70.
 Fair Work Act 2009 (Cth) s 558B(4).
 Explanatory Memorandum, Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (Cth) 10 para 67.