Nowhere to hide: Individuals being held personally liable to breaches of the Fair Work Act

There has been an upward trend of the Fair Work Ombudsman (Ombudsman) to utilise the accessorial liability provisions in the Fair Work Act 2009 (Cth) (Act) to hold directors and managers personally liable for breaches under the Act.

The Legal Framework

Section 550 of the Act provides that a person who is involved in a contravention of a civil remedy provision (for example, adverse action) is taken to have contravened that provision.

“Involved in the contravention” is broadly defined in the Act, and includes:

(a) aiding, abetting, counselling or procuring the contravention;
(b) inducing the contravention;
(c) being knowingly concerned in or party to the contravention; or
(d) conspiring with others to effect the contravention.

Case law also provides that a person:

(a) must:

  • have knowledge of the essential facts constituting the contravention;
  • be knowingly concerned in the contravention;
  • be an intentional participant in the contravention based on actual not constructive knowledge of the essential facts; and

(b) need not know that the matters in question constituted a contravention.

The objective of section 550 is to hold employees liable to the extent that they are involved in conduct which is unlawful.

The maximum penalty for an individual is currently $10,800 however an individual can also be exposed to an order for compensation for loss and damage.

Two Recent Cases

FWO v Oz Staff Career Services Pty Ltd & Ors [2016] FCCA 105 (12 February 2016)

In FWO v Oz Staff Career Services Pty Ltd & Ors, the Federal Circuit Court held the director and HR manager of Oz Staff Career Services Pty Ltd liable for knowingly falsifying employment records and making unlawful deductions from the wages of workers.

In this case, the Court found OzStaff Career Services Pty Ltd deducted an administration fee from 102 employees, took meal allowances from another 44 employees, and falsified employment records to conceal the deductions.

A major issue in this case was the state of knowledge of the director and HR manager about the contraventions.

While the HR manager denied any involvement or knowledge in the contravention, the Court rejected this argument, stating:

“I simply do not accept that the person running the human resources activities of [OzStaff] and intimately involved, as he clearly was, with award matters was not aware not only that the deductions were being made but that the records which were forwarded to [the Ombudsman] not showing those deductions were false and misleading. He was clearly involved within the meaning of s.550 of the FW Act.

The Court also held that it was “beyond doubt that [the director] was knowingly involved” as OzStaff was “wholly the creature” of the director. The Court said this conclusion was “buttressed” by evidence that OzStaff and its director had several past complaints against them.

FWO v Step Ahead Security Services Pty Ltd & Anor [2016] FCCA 1482

Similarly, in FWO v Step Ahead Security Services Pty Ltd & Anor, the Federal Circuit Court ordered a company director to personally pay more than $50,000 in penalties for his involvement in contraventions of the Act.

In this case, the Court found that Step Ahead Security Services Pty Ltd (Company), a security company owned and controlled by a sole director, failed to pay employees the minimum rate of pay, casual loading, several different penalty rates, overtime, and broken shift allowances; and failed to comply with the minimum shift lengths required under the Security Services Industry Award 2010.  Over a three-month period, the eight employees were underpaid by $22,779.72.

In his decision, Judge Jarrett ordered that the sole director and the Company would be jointly and severally liable for the amounts underpaid. This meant that if the company could not back pay the entitlements, the director would be personally liable for that amount.

In addition, the Court ordered significant penalties of $257,000 against the company and $51,400 against the director. In making this order, Judge Jarrett stated the sole director was was the “controlling mind” of Step Ahead and was “well aware of the requirements of the Award” due to previous dealings with the Ombudsman.

The Ombudsman has subsequently hailed this as a “precedent-setting” decision.

Lessons

These cases demonstrate that despite a company being a separate entity, its directors and employees can still be found personally liable if they are involved in breaches of the Act.

It is now more important than ever for directors and senior personnel to ensure the obligations to their employees are being met and seek legal advice to ensure compliance with the provisions of the Act.

Please contact a member of Lynch Meyer’s Workplace Relations team if you require advice about your obligations under the Act.