The Fair Work Ombudsman (FWO) is looking well beyond the traditional defendants in cases dealing with underpayments or sham contracting. This is a quite conscious policy ( see speech by the FWO, Natalie James, 4 November 2016), aiming to get beyond the employer in the strict legal sense, to the people in the employer's organisation who are responsible, and to external parties who are knowingly involved in infringements.
The basis for liability of individuals, and organisations other than the direct employer comes from s550 of the Fair Work Act, which makes a person knowingly involved in a contravention liable for that contravention. The FWO has been increasingly bold in the way that it prosecutes accessorial liability. The first people in line are, of course, the directors of the employer. But beyond that the FWO has taken proceedings against HR managers and parties in the employer's supply chain, and has given clear indication that external advisers – lawyers, accountants, IR specialists, could be prosecuted.
In the case of FWO v Centennial Financial Services [2011] FMCA 459, an HR Manager was found liable for his company's sham contracting (by converting employees into contractors and then evading entitlements) and penalised $3,750. His argument that he just did what he was told by the director of the company didn't succeed: he did have a lower level of responsibility (reflected in the penalty), but he had an independent obligation not to be involved in the sham contracting, which he knew, or should have known, was illegal.
More recently, a labour hire company supplying workers to Crown Casino in Melbourne made deductions from wages paid to employees for administration charges and meals, and when the FWO made enquiries, produced falsified records to hide the deductions. The OH&S and HR Coordinator was penalised $9,920 (about two-thirds of the director's penalty). The deliberate nature of the conduct (the deductions, and especially the false records), and the fact that the HR Coordinator should have known the deductions weren't legitimate, undermined the HR Coordinator's case for leniency.
And it is not only penalties that the FWO is after. In a recent case (FWO v Step Ahead Security Services [2016] FCCA 1482), a director of the company (with form for non-compliance with workplace laws) liquidated the company when the FWO started proceedings about unpaid entitlements. The FWO sought, and obtained, orders that the director not only pay $51,400 in penalties, but also that he himself pay the unpaid entitlements of nearly $23,000.
In the supply chain, there have been well-publicised cases involving Coles and Woolworths taking responsibility for the terms on which their trolley collecting contractors pay their employees, and the franchisee of Yogurberry chain has been held to account for underpayments by one of its franchisees, and required to undertake audits across its network to identify any other infringements. In recent weeks, it has also been reported that Caltex is being investigated in connection with wages paid by its service station operators. The pace of this approach to enforcement seems likely to increase.
So what should you do if you find an underpayment situation or other compliance problem in your business?
From an individual point of view, you should be raising the issue and putting your concerns on record, and seeking to fix the problem. You should dissociate yourself from the conduct in question, and if resolution is not possible, you may need to reconsider your position with the organisation. From the organisation's point of view, if the problem can be readily fixed, it should be. If it can't, consider contacting the FWO to apprise them of the problem and what you are doing about it, and get their support and cooperation in resolving the issue.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
