Australia: Professional service providers, risk management and accessorial liability under the Fair Work Act - 10 May 2017

Last Updated: 14 May 2017
Article by Damon King

On 28 April 2017, the Federal Circuit Court of Australia ruled for the first time that a professional services provider (an accountancy firm) should be held liable as an accessory for the unpaid award wages contraventions of its employer client.

The decision in Fair Work Ombudsman v Blue Impression Pty Ltd & Ors 1 has since attracted prominent media attention and raised concerns that professionals will now be more frequently and unreasonably held responsible by the regulator, the Fair Work Ombudsman, for the labour practices (and sins) of their clients under the accessorial liability provisions in the Fair Work Act 2009 (Cth) (Act).

Senior Associate, Damon King discusses the reasons for the decision, and, particularly, whether it poses greater risk management consequences for professional advisory and other services providers to national system employers under the Act.

Regulatory background

Under section 550 (1) of the Act, persons involved in a contravention of a civil remedy provision of the Act can be held liable as an accessory. Importantly, a person will be involved in a contravention if they have been, in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention. 2

The Fair Work Ombudsman, Natalie James, said on the commencement of the court proceedings culminating in the decision:

"We have been concerned about the role of key advisers, such as accountants and HR professionals, in some serious and deliberate contraventions... Small business relies heavily on trusted advisers and if they give incorrect or bad advice, or deliberately assist with the contravention, should they not be held accountable? In situations where we believe accountants or other professionals knowingly facilitate contraventions of workplace laws, we are prepared to hold them to account." 3

Decision

In Fair Work Ombudsman v Blue Impression Pty Ltd & Ors, the Court ultimately found that the accountancy firm, Ezy Accounting 123 Pty Ltd (Ezy Accounting), was wilfully blind to, and therefore involved in, the unlawful labour practices of its client, Blue Impression Pty Ltd (Blue Impression), which resulted in the Japanese fast food chain not paying two employees the minimum amounts to which they were entitled under the Fast Food Industry Award 2010.

Proceedings

The employer, Blue Impression did not contest the proceedings and made full admissions that it unlawfully paid its employees a flat hourly rate of pay of only $16.50, without regard to the various loadings, penalties and allowances prescribed by the award. As a result, Blue Impression underpaid its employees' award entitlements totalling nearly $10,000.

Ezy Accounting, a husband and wife accountancy practice, defended the proceedings essentially on the basis that it maintained that it was only retained by Blue Impression to provide book keeping and data entry services for the client's payroll system and, further, its officers and employees had no knowledge of the employment arrangements and award contraventions.

Findings

The Court found that:

  • the sole director and shareholder of Ezy Accounting, Mr Lau, was the controlling mind of the accountancy practice.
  • Blue Impression had been a long term corporate client of the accountancy practice.
  • Mr Lau was aware from an earlier workplace audit by the Fair Work Ombudsman, in the previous year, that:
    • Blue Impression's employment arrangements were regulated by the award (and information about the applicable minimum rates of pay which applied under the award was readily available to him);
    • the audit found there had been systematic award underpayment contraventions by Blue Impression; and
    • a HR consultancy firm, Employsure, was retained by Blue Impression to provide advice about its payroll obligations and to respond to the audit findings.
  • notwithstanding the above, Mr Lau did not afterwards:
    • make enquiries about whether Blue Impression's rates of pay had been changed to make sure they complied with the award; or
    • inform the bookkeeper/data entry officer, who was employed by Ezy Accounting and provided the payroll services to Blue Impression, of any of the above matters.

Reasoning

In light of the above findings of fact, the Court made the following adverse inferences against Ezy Accounting:

  • it deliberately shut its eyes to what was going on in a manner that amounted to connivance in the contraventions of Blue Impression; and
  • it had at its fingertips all the necessary information that confirmed the failure by Blue Impression to meet its award obligations and nonetheless persisted with the maintenance of its client's payroll system with the inevitable result that the award breaches occurred.

Ezy was therefore declared to have been liable as an accessory for its client's breaches of the award and to have contravened the Act.

Final Thoughts

In our view, there is nothing particularly startling about the decision, having regard to the relevant factual findings, nor does it represent a watershed moment for the Fair Work Ombudsman in seeking to take enforcement action against professionals providing advisory and other services to employer clients in respect of their labour practices and payroll obligations.

However, the decision does serve as a useful reminder that the accessorial liability provisions exist and that professionals, whilst servicing the needs of their clients, need to be mindful of their obligations under the Act.

In the absence of prior knowledge of "red flags" placing a professional on notice of their client's potential contraventions of the Act, a professional who competently discharges the services they are retained to provide can take comfort in the following judicial statement (relating to a failed case involving an accessorial liability claim made against a lawyer):

"It is difficult to see how a lawyer, acting in accordance with her or his professional obligations, could be said to be "involved" in a contravention of the general protections provisions of the Fair Work Act. It is likely that there would need to be some conduct outside the lawyer's professional role, of which constituted a breach of the lawyer's ethical or professional obligations in giving advice and acting on behalf of a client, before such a finding could be made. For example, I do not consider s550 is intended to apply where a lawyer gives advice in good faith to an employer about the lawfulness of the termination of employment, having diligently undertaken the necessary legal and factual inquiries, even if a Court subsequently finds, contrary to the lawyer's advice, that the termination was adverse action taken for a prohibited reason." 4

Once again, this decision reiterates that national system employers, the senior level individuals through whom they act and, in certain cases their professional advisers, need to be proactive and take reasonable steps from a due diligence perspective, to ensure that their/their client's workforce is being paid correctly and it is meeting its obligations under any applicable industrial instruments, such as modern awards or enterprise agreements.

Footnotes

1 [2017] FCCA 810

2 Section 550(2) of the Act

3"Accountancy firm faces Court over alleged involvement in underpayment of workers", media release issued by the Fair Work Ombudsman on 19 February 2016

4Mortimer J in Ryan v Primesafe [2015] FCA 8 at [81]

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