Australia: Employment law risk: three part series: What obligations and risks do directors have and how can they be managed?

Last Updated: 8 August 2016
Article by Tiffany Campbell

Much has been made recently of the warning issued by the Fair Work Ombudsman, Natalie James, to managers (in particular, human resources managers) about being held personally liable for breaches of workplace laws by their employers.

Indeed, we considered similar, earlier comments by the Fair Work Ombudsman in a recent article on accessorial liability under the Fair Work Act 2009 (Cth) (FW Act).

By far, however, the majority of individuals the subject of legal action and prosecution in the employment law space continue to be directors:

  • In Fair Work Ombudsman v South Jin Pty Ltd (No 2)1, two directors were found to have been involved in multiple breaches of the FW Act (including failure to pay proper casual loading, failure to pay the minimum superannuation contributions, failure to pay applicable penalty rates, and failure to make or keep proper records), and ordered to personally pay a total of $52,850 in penalties and back-payments;
  • In Fair Work Ombudsman v Hiyi Pty Ltd & Ors2, two directors were also found to have been involved in for multiple breaches of the FW Act (including failure to pay the applicable minimum wage, casual and weekend penalty loadings under a modern award), and ordered to personally pay a total of $40,000 in penalties.

Over the next three weeks, we will set out the employment laws that can impose personal liability on directors, and provide suggestions for practical steps that directors can take to manage these risks. This week, we will concentrate on the obligations under the FW Act, next week we will concentrate on the obligations of directors pursuant to the relevant Work Health and Safety legislation and in our final third week, we will concentrate on the obligations directors have pursuant to taxation legislation.

Fair Work Act

The FW Act provides that:

  1. A person who is involved in a contravention of certain provisions (called 'civil remedy provisions') of the FW Act is taken to have contravened that provision; and
  2. A person is involved in a contravention if:
    1. the person has aided, abetted, counselled or procured the contravention; or
    2. the person has induced the contravention, whether by threats or promises or otherwise; or
    3. the person has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
    4. the person has conspired with others to effect the contravention.

There are a number of 'civil remedy provisions' in the FW Act, including (in no particular order):

  • Contravening the National Employment Standards (which govern things such as minimum leave entitlements, notice of termination and redundancy pay);
  • Contravening an applicable modern award or enterprise agreement;
  • Failure to keep employee records; and
  • Taking adverse action against an employee or a potential employee.

So what can directors do to avoid liability in this space?

At the least, we recommend to directors that they take the following steps to minimise the potential for a breach of the FW Act or, if there is a breach, minimise the potential liability.

  • Ensure proper human resources systems are in place.
  • What type of system this may involve will depend upon the size of the business – the larger the business, the higher the expectation that you will have available full-time human resources personnel and/or will seek advice on employment law matters.

    For smaller businesses who may not have a dedicated human resources manager, we recommend that, prior to engaging staff, directors seek advice on key pre-employment matters such as award coverage for proposed staff, fulsome employment contracts, and implementation and training in crucial policies and procedures such as an Equal Employment Opportunity policy (dealing with discrimination, sexual harassment and bullying).

  • Undertake annual audits of employee engagement.
  • Directors should undertake and/or implement annual employment audits to ensure that:

    • employees are actually being paid minimum entitlements under the FW Act or any applicable modern award or enterprise agreement; and
    • the required employee records are being made, and kept, by the business.
  • Seek advice before taking action against an employee (including dismissal, demotion or transfer to another job) because the employee has a statutory or contractual entitlement, or because the employee has complained about something to do with their job.
  • These are known as 'workplace rights', and taking action against an employee because of a workplace right is adverse action, which could leave directors personally liable for such action.

If you would like the benefit of Holding Redlich's experience in order to:

  • understand further your key employment a obligations as a director;
  • ensure key pre-employment matters such as award coverage for proposed staff, fulsome employment contracts, and policies and procedures are in place in the business and operate to properly protect the business; and
  • ensure your business has robust audit and review systems in place,

please contact our Workplace Relations & Safety team.

The next article in our Employment Law Risk Three Part Series will consider the obligations and risks of directors under Work Health and Safety legislation.

Footnotes

1 Fair Work Ombudsman v South Jin Pty Ltd (No 2) [2016] FCA 832.

2 Fair Work Ombudsman v Hiyi Pty Ltd & Ors [2016] FCCA 1634.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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Authors
Tiffany Campbell
 
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