One of the purposes of someone forming a company is to enable an
enterprise to trade to the extent of the resources of the company.
The intention of this structure is to allow people to start an
enterprise - be innovative - and if it doesn't work, to be able
to move onto their next venture. It has been proven time and again
the world-over to encourage innovation and new enterprises.
Yet, sometimes the temptation is very strong for courts to want
to pierce this 'corporate veil' in pursuit of
debts, and look to directors of companies personally for the
recovery of money.
Further, state governments (thirsty for revenue), have over the
years amended workers compensation and payroll tax legislation in
many states so that directors can be held liable for the payment of
unpaid payroll tax and even workers compensation premiums.
Fortunately, state workcover authorities have been generally
relatively slow to pursue directors where companies have (often
through no fault of their own) got into difficulty and been unable
to pay their premiums.
In the last 12 months, the corporate veil has been shredded by
the Fair Work Ombudsman (FWO) in pursuit of unpaid entitlements, as
it has sought to have penalties imposed upon directors. Supposedly
this is to deter profligate directors from being reckless in
non-compliance (awards and National Employment Standards).
Recently, the Fair Work Commission has gone a step further and
bypassed the company, seeking payment of outstanding wages from a
director - personally.
This undermines 200 years of company law.
Currently, the Fair Work Act allows employees, the
inspector or unions to pursue directors and even management
employees for fines under the Civil Remedy Provisions. These fines
can be as much as $10,800 for an individual (they are $54,000 for
the company) and can be ordered to be paid to the employees
themselves or even the union.
In an even more extraordinary move the FWO has declared
unashamedly that it is now in pursuit of management staff and, in
particular, HR Managers. So it is now common place for directors
and HR Managers within businesses to be named as respondents in
prosecutions by the FWO or in claims by employees for alleged
breaches of the award. This is starting to result in direct
penalties being imposed against such individuals.
This can place HR Managers in a fraught position.
All of this highlights the importance of thoroughly
understanding the implications of the award on your business - even
when you are paying well above award wages. As an example, recently
a HR Manager was found liable personally to be penalised where the
company only short paid an employee 2 days remuneration. Other
areas where HR Managers and employers can be held liable include
where workers are improperly classified contractors.
All this would be less of a problem if the entitlements of
employees pursuant to awards were clear and easily understood by HR
practitioners. However, even determining which award applies can be
hugely challenging and the line between employee and contractor is
The company structure was
designed to encourage entrepreneurship and economic growth, but
unfortunately it is being attacked systematically by very complex
legislation which discourages people from " having a go"
and starting a business for fear they may be held personally
Even more troubling, it places HR managers – themselves
employees – acting bona fides in the interest of their
employers at risk of personal liability.
If you are in such a role:
it is certainly worth ensuring that your employer has adequate
employment practices insurance to cover you when carrying out your
duties, including for a fine arising from a civil prosecution;
consider when it may be necessary to get a second opinion on
the legal advice your company is receiving – if you believe
it to be 'adventurous' advice.
The Hunger Games have arrived in the workplace.
This article was first published on LinkedIn as a blog. You can
read the original
Parties before the Fair Work Commission generally bear their own costs, but this case shows that this is not always so.
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