Friday, 15 March 2019

Ignorance is not Bliss: ‘Unaware’ Directors Found Personally Liable for Underpayments

As HR Legal has previously reported, in recent years, the Fair Work Ombudsman has increasingly focused on pursuing personal penalties against company directors responsible for systematic breaches of workplace laws, where such directors are found to be “knowingly involved” in a contravention of the Fair Work Act (the Act). This is known as ‘accessorial liability’.

To be prosecuted for accessorial liability, directors are required to be directly responsible for the operation of their business. As highlighted by a recent case, directors cannot plead ‘wilful blindness’ to protect them from personal responsibility and legal liability.

In 2016,  the Federal Circuit Court found a group of five companies guilty of contravening the Act for failing to pay employee entitlements in excess of $1 million. These substantial underpayments were accrued by the group operating for a period of 10 months without consistently paying employee salaries. However, the Federal Circuit Court at first instance declined to make personal liability findings against the two directors of the companies.

The Fair Work Ombudsman appealed this finding and the issue was recently reconsidered by the Court in February 2019.

The Court ultimately found the directors guilty of accessorial liability for the underpayments, as the Court found that, by virtue of their knowledge of the businesses’ dire financial circumstances, they should have understood that underpayments were occurring.

The Court found that the directors’ “intentionally participated in the contravention through positive acts” such as offering staff bonuses to stay on (in the absence of regular wage payment) and repeatedly telling employees that “payment was imminent”. The directors’ failure to inquire or ask questions did not absolve them or their involvement – wilful blindness was no defence.

This significant imposition of liability was despite the Court finding that the directors “were hardworking and apparently honest people caught up in adverse events beyond their control”.

This decision emphasises the high stakes for directors and business operators should they fail to ensure the company is meetings its obligations under workplace laws – and the resolute determination of the Fair Work Ombudsman to pursue individuals knowingly involved in serious breaches of those obligations.

Case Study:  Fair Work Ombudsman v Priority Matters Pty Ltd & Anor and Fair Work Ombudsman v Superlattice Solar Pty Ltd & Anor and Fair Work Ombudsman v Geneasys Pty Ltd (in liq) & Anor and Fair Work Ombudsman v Silverbrook & Anor and Fair Work Ombudsman v Mpowa Pty Ltd & Anor (No 4) [2019] FCCA 56

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This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.

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