Australia: Directors found personally liable for $1.1 million in underpayments

The Fair Work Ombudsman's recent focus on accessorial liability has again been demonstrated in a recent case where two directors who were 'wilfully blind' to the fact that employees were not being paid their entitlements were found personally liable for the underpayments1.

Decision in the first instance

The case centred upon the underpayment of multiple employees of five respondent entities and two associated directors. The entities failed to pay in excess of $1.9 million to 43 employees over a period of 10 months from February to December 2013.

In 2016, the Federal Circuit Court ordered three related entities to pay $1.15 million to employees who had been underpaid, as well as a $115,000 penalty. However, the Court held that the Fair Work Ombudsman had failed to prove that the directors of the entities had been 'knowingly involved' in the underpayments.

The accessorial liability question was appealed to the Federal Court who remitted the matter back to the Federal Circuit Court in February 2019 to re-hear the matter in relation to the potential accessorial liability of the directors.

Matter re-heard

When the matter was re-heard, the directors claimed that they relied on others to undertake the day to-day management of human resources within the business. However, the Federal Circuit Court found that it was unnecessary for the directors to have personal knowledge of each employee and the amount of their entitlements in circumstances where they each knew that the entitlements were insufficient.

At all times, the directors submitted, and the court accepted that the directors:

  • believed that they could pay any entitlements that were owing (at least in part)
  • did 'everything humanely possible' to ensure payment was made
  • had taken 'all reasonable steps' to try and effect payment of the employee's entitlements during the relevant period.

Findings

Despite the directors good intentions and efforts to ensure payment, Judge Driver still found that the directors were liable as accessories under section 550 of the Fair Work Act because they were knowingly involved in the contraventions. This was because the directors knew that wages and entitlements were payable to the employees and that the employees did not receive those wages or entitlements.

The Federal Circuit Court also found that the directors' 'intentionally participated in the contravention through positive acts', such as offering staff bonuses to stay on (in the absence of regular wage payment) and repeatedly telling employees that 'payment was imminent'. The directors' failure to inquire or ask questions did not absolve them of their involvement – wilful blindness was no defence.

Other factors that Judge Driver found irrelevant when determining accessorial liability included that:

  • the employees had previously received payments that were greater than their entitlements
  • the underpayments were caused by issues with the ATO that could not have been foreseen
  • the employees were ultimately paid all the money they should have received.

However, Judge Driver noted that these factors could be relevant in assessing penalties.

Footnote

1Fair Work Ombudsman v Priority Matters Pty Ltd and Fair Work Ombudsman v Superlattice Solar Pty Ltd and Fair Work Ombudsman v Geneasys Pty Ltd (in liq) and Fair Work Ombudsman v Silverbrook and Fair Work Ombudsman v Mpowa Pty Ltd (No 4) [2019] FCCA 56

© Cooper Grace Ward Lawyers

Cooper Grace Ward is a leading Australian law firm based in Brisbane.

This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.

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