Franchisor avoids penalties for failure to comply with invalid Notice to Produce

When the Fair Work Act 2009 was amended in 2017 to allow franchisors to be penalised for the non-compliance of their franchisees if they failed to take ‘reasonable steps’ to prevent contraventions from occurring, the Fair Work Ombudsman quickly placed the franchising model into its spotlight.

This increased focus has led to the FWO carrying out numerous investigations into franchisees and their franchisors, in some cases leading to the imposition of fines and other penalties. However, preceding these penalties is a rigorous and highly regulated investigation process.

Recently United Petroleum, the franchisor for United Petroleum petrol stations, was the subject of an investigation, after being issued with a ‘Notice to Produce’ by the FWO. However, when the notice was tested in Court, it was held that the FWO’s exercise of this investigatory power was invalid. This case demonstrates the limit on the scope of these investigatory powers, and the processes available for recipients to contest an invalid notice.

Fair Work Ombudsman v United Petroleum Pty Ltd [2020] FCA 590

What is a ‘Notice to Produce’?

A Notice to Produce, or NTP, is a mechanism under the Fair Work Act that allows the FWO to require the production of certain documents and records. It is a statutory power, meaning unlike a subpoena an NTP does not have to approved by a Court. As such, there are a number of obligations imposed on the FWO in exercising the power to issue an NTP to prevent the misuse of this power.

This process is not unique to the Fair Work Act, and many other regulatory bodies are able to compel the production of certain documents and records, and in some cases more than that.

Ultimately the documents and records produced under any such notice may eventually be used to instigate legal proceedings against the recipient. As such, to mitigate legal risk, the first step often involves interrogating the investigation process and making sure the regulatory notice, in the case below an NTP, was issued lawfully.

What happened in United Petroleum’s case?

In February 2018, the FWO commenced an investigation into a franchisee of United Petroleum. The result of that investigation was that it was found that the franchisee had contravened terms of the Vehicle, Manufacturing, Repair, Services and Retail Award 2010 and the Fair Work Regulations 2009, the latter most likely relating to record-keeping requirements.

Later that year, the inspector commenced an investigation into United Petroleum as a ‘responsible franchisor entity’ under the Fair Work Act. This culminated in an NTP being issued to United Petroleum on 9 November 2018.

United Petroleum did not comply with the NTP within the specified timeframe, and the FWO commenced proceedings in the Federal Court relating to United Petroleum’s failure to comply.

What was United Petroleum being investigated for?

Under the 2017 amendments to the Fair Work Act, ‘responsible franchisor entities’ are able to be held responsible for the contraventions of their franchisees, such as if they underpaid their employees, if the franchisor failed to take “reasonable steps to prevent a contravention by the franchisee.”

As such, whether a franchisor may be held accountable necessarily depends on exactly what contravention by a franchisee they have been accused of failing to prevent.

Did United Petroleum failure to comply with the requirements of the NTP?

A central consideration in the case was whether the NTP was validly issued. It was held that for an NTP to be valid, it must, “on a non-technical and fair reading”:

• disclose that it is an exercise of the power under section 712 of the Fair Work Act (which allows an NTP to be issued);
• specify with reasonable clarity the records or documents that the recipient is required to provide; and
• disclose the relationship between the records or documents being required and the matter which is the subject of the exercise of the power.

United Petroleum argued that because an NTP is by its very nature “highly invasive”, it requires strict compliance with these requirements. In this case, United Petroleum was being investigated for “secondary” contraventions – the “primary” contraventions being the conduct of the franchisee.

The issue in this case was the third requirement, that the NTP disclose the relationship between the documents and records, and the subject matter under investigation. Here, the FWO did not disclose the exact “primary” contravention of the franchisee, and merely informed United Petroleum that non-specified contraventions of various instruments had occurred.

It was argued that this left United Petroleum having to guess what the underlying contraventions were.

Why is it important that an NTP discloses its purpose?

There are two main reasons why an NTP must specify its purpose. The first is because an NTP can only be issued if the FWO (or an inspector appointed by the FWO) believes that a contravention has occurred and the recipient has information relevant to determine whether that it the case. If there is no belief that there has been a contravention, then an NTP cannot be issued.

The second related purpose is that it allows the recipient to determine whether the documents or records actually requested relate to the matter being investigated. Read together, these two requirements in essence prevent the FWO from engaging in speculative investigations.

In applying these principles to the present case, the Court held:

“Where a statutory notice is issued to compel the production of documents for the purpose of investigating whether the notice recipient is accessorily or secondarily liable in connection with an actual or suspected primary contravention committed by a third party, it will ordinarily be insufficient, for the purpose of specifying the matter underlying the production of documents, for the notice to simply detail the source of the accessorial or secondary liability, but fail to specify the nature of the primary contravention to which the accessorial or secondary liability is connected. This is because, for the notice to be valid, the notice recipient needs to be informed of the nature of the primary contravention to enable the recipient (and the Court) to assess whether the notice validly required the specified documents to be produced.”

Because United Petroleum was unable to determine whether the documents and records it was being required to produce actually related to an investigation being carried out by the FWO, the notice itself was, as the Court described, “wholly invalid”.

What should I do if I receive an NTP?

The receipt of an NTP or any other type of notice from a regulator is commonly the first step towards commencing legal proceedings in relation to a contravention.

You should always obtain independent legal advice in these instances to understand whether the notice has been validly issued, and what is required to be done to comply with the notice. The provision of professional advice is subject to legal professional privilege, and as such taking this step will not prejudice any proceedings if it is determined that a contravention has occurred.

United Petroleum demonstrates that such notices are not infallible documents, and that recourse is available where this power has been used in error.

If you have received an NTP or any other type of notice from a regulator, contact NRA Legal on 1800 572 679.