Australia: Landmark Fair Work Ombudsman prosecution - When the EZY road turns out to be risky

IN BRIEF - CORPORATE ADVISORS MAY BE FOUND LIABLE FOR CLIENTS' FAIR WORK ACT BREACHES

A landmark decision handed down in the Federal Circuit Court in Fair Work Ombudsman v Blue Impression Pty Ltd & Ors [2017] FCCA 810 has seen an accounting firm prosecuted by the Fair Work Ombudsman (FWO) for being "involved in" breaches of the Fair Work Act 2009 (Act). This decision has significant implications for organisations and professionals who provide advice to employers about their payroll obligations, including lawyers, accountants, tax advisors, IT or systems advisors and HR service providers, as well as payroll services and in-house HR.

ACCOUNTING FIRM INTENTIONALLY IGNORED BREACHES OF FAIR WORK ACT, COURT FINDS

In Fair Work Ombudsman v Blue Impression, the FWO joined Ms Wong (Blue Impression's Manager) and Ezy Accounting 123 Pty Ltd (ACN 105 317 691) to its prosecution of Blue Impression on the alleged basis both were involved in, and accessorily liable for Blue Impression's contraventions of the Act.

The Court found the accounting firm had intentionally ignored breaches of the Act, which were obvious on their instructions, and that they were therefore liable under the Act for being involved in the breaches.

DECISION MAKES CLEAR COURTS' EXPECTATIONS OF CORPORATE ADVISORS

While the circumstances of this case are somewhat unique, in that the advisors were aware of previous contraventions of the Act committed by its client and that it continued to assist its client to perpetuate the same breaches, it provides useful guidance about the FWO's powers and the risk which professional advisors face.

It is clear from the decision that the courts expect advisors to provide accurate advice about employee payroll and entitlement obligations, even when that advice may not be explicitly sought. The decision goes some way towards implying a "compliance" obligation on advisors. The decision provides clear guidance to advisors about seeking detailed instructions and information about the context in which their services and advice is being provided, so as to avoid the risk of being found complicit in employment law breaches.

What remains unclear is what the FWO would do with an advisor who observed breaches and informed their client of them, but who were nonetheless instructed to "ignore" the breaches.

FAIR WORK OMBUDSMAN TWICE IDENTIFIES PAYROLL CONTRAVENTIONS BY HANAICHI

In 2014, the FWO identified contraventions of the Act by a Japanese fast food chain Hanaichi QV operating in Melbourne. The business involved outsourced its payroll and after being made aware of certain contraventions, sought assistance from the payroll operator, and a notable industrial relations entity (Employsure) to remedy those issues. Ezy and Employsure both liaised with Hanaichi to ensure that the restaurant was no longer underpaying its employees. Unfortunately, the changes implemented by Ezy to Hanaichi QV's payroll weren't implemented across the rest of the business, and a year later the FWO alleged additional contraventions of the Act by a "sister" restaurant operated by Hanaichi at a different location.

FAIR WORK OMBUDSMAN ALLEGES EZY INTENTIONALLY PARTICIPATED IN CONTRAVENTIONS

FWO alleged that Ezy knew, or should have known, that Hanaichi was breaching the Act when Hanaichi instructed it to make a flat rate payment of $16.50 to an employee regardless of the time or day the employee worked. Essentially, the FWO alleged Ezy had actual knowledge of the facts admitted by Hanaichi which gave rise to different rates of pay. As such it was alleged that Ms Wong and Ezy were intentional participants in those contraventions, and either/or aided, abetted or (by acts or omissions) directly or indirectly became knowingly concerned in or a party to, those contraventions.

According to the FWO, Ezy was involved in, and therefore should be treated as having itself contravened those provisions pursuant to section 550 of the Act.

EZY'S DEFENCE FOR NOT REPORTING FAIR WORK ACT BREACH INCLUDE NOT AWARE OF AWARDS, ROLE NOT ADVISORY BUT LIMITED TO DATA ENTRY

Ezy argued it was simply processing payroll information provided to it and was not aware of the broader details relating to the breaches, such as the time or date the employee worked. Ezy argued it did not provide workplace industrial assessments and was not aware which award applied or the operation of award allowances. Ezy argued it had no involvement in the hiring or payment of Hanaichi's staff and had no advisory role in terms of award obligations and its role was limited to that of data entry. Mr Lau (Ezy's sole director) stated under cross examination that "... we don't question the pay rate ... we don't raise questions. We just process what we are given..." (at [37]).

Ezy additionally contended that as a company, it should not be liable for the actions of its employees who had responsibility for the processing of Hanaichi's payroll.

WHY THERE WAS A BREACH OF THE FAIR WORK ACT BY EZY

O'Sullivan J summarised (at [25]) that:

...The authorities establish that, in order for a person to have accessorial liability, he or she must be a knowing participant or, in other words:
  • have knowledge of the essential facts constituting the contravention;
  • must be knowingly concerned in the contravention;
  • must be an intentional participant in the contravention based on actual not constructive knowledge of the essential facts constituting the contravention – although constructive knowledge may be sufficient under s.550(2)(c) of the Act in cases of wilful blindness; and
  • need not know that the matters in question constituted a contravention.

The Court found that Ezy's director (Mr Lau) "engaged in a transparent (and unsuccessful) attempt to understate the nature of the relationship between himself (as director of Ezy or otherwise) with the first respondent." (At [38].) The Court found that Mr Lau's evidence was blasé, unreliable and deliberately obtuse. In particular, the Court noted that Mr Lau's evidence that as the payroll operator he didn't question the pay rates nor ask questions of the employer, was extraordinary, and the Court found that Mr Lau was intentionally trying to understate the relationship between Ezy and Blue Impressions. The Court also found that Mr Lau knew the employees were being underpaid.

The Court examined the evidence of Ezy's other employees and determined that Ezy's employees had given evidence artificially designed to minimise their and Ezy's culpability and liability. In short, their evidence was not accepted.

EZY FOUND TO BE ACCESSORILY LIABLE AS IT WAS INVOLVED IN AND KNOWLEDGEABLE OF CONTRAVENTIONS

The Court determined that Mr Lau was involved in and knowledgeable of the contraventions for the purposes of Ezy's corporate liability under the Act despite its insistence that Ezy should not be liable for its bookkeeper's actions or failings.

The Court found that Ezy (through Mr Lau) knew, or would have known had he not "shut his eyes" (at [98]), that the rates in its payroll system were not sufficient to allow Blue Impression (the first respondent) to comply with the obligations imposed on it by the award, by reason of the result of the earlier FWO audit.

The Court found that the evidence demonstrated that Ezy (through Mr Lau) had deliberately ignored the contraventions in a manner that amounted to a connivance in the contraventions by Hanaichi. Interestingly, the Court agreed with the FWO that Ezy, as a payroll operator, had a "key role in determining the first respondent's obligations to its employees" (at [104]).

For these reasons the Court declared that Ezy was accessorily liable (through direct knowledge or wilful blindness) and therefore involved in Hanaichi's contraventions of the award and liable for pecuniary penalties under the Act.

The matter has been adjourned for a penalty hearing.

CORPORATE ADVISORS SHOULD CONSIDER RISK OF BEING FOUND LIABLE FOR CLIENTS' BREACHES OF FAIR WORK ACT

This decision has attracted much attention and commentary in the corporate advisory sector.

This case provides a clear example of why advisors and professionals need to understand the context in which they provide advice or services. If advice or services are provided without the necessary context, corporate advisors (whether they be tax, accounting, legal, HR, IT, payroll or related services) could find themselves liable for not providing the right advice and for aiding/abetting in breaches of employment legislation.

Where corporate advisors act as agents for their clients, and in doing so effect breaches of employment legislation, an "I didn't know" defence will not absolve them of liability.

Based on this decision, advisors should consider the scope of the advice or service which they provide, whether they can safely do so without full and detailed instructions or understanding the context in which their advice and services will be used. In some circumstances, carefully drafted retainer disclaimers may be effective.

In the employment and industrial area this means:

  • understanding what industrial instrument applies to a client
  • understanding what the terms of the contract and applicable policies might be
  • knowing what the relevant legislation (both state and federal) requires of employers
  • receiving instructions about how employees actually work for a client

Furthermore, advisors and professionals should ensure that they maintain adequate professional indemnity insurance—particularly with statutory liability cover—to ensure that they are not "caught out" with these sorts of actions and joinders by the FWO.

Megan Kavanagh Cathryn Prowse
Workplace relations
Colin Biggers & Paisley

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.

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