The Rise of Accessorial and Individual Liability – A Growing Concern for Managers and Directors

Directors, CEOs, General Managers, and even HR Managers beware; the Fair Work Ombudsman (FWO) appears to be increasing its activities and is taking legal action against individuals under the Fair Work Act 2009 (Cth) (“the Act”), and there can be serious consequences.

Last year saw an increase in the Fair Work Ombudsman’s (FWO) efforts to pursue directors and managers, including HR and payroll managers, for their involvement in contraventions of the Act.

Section 550 of the Act makes it possible for legal action to be taken against individuals who are personally involved in breaching the provisions of the Act. This is commonly referred to as “accessorial liability”. The FWO is utilising that Section of the Act to prosecute personally those who make decisions which contravene the Act, particularly in respect to underpayment of wages.

Accessorial liability applies when an individual is “involved in” a contravention of the Act. Section 550 states that an individual will be considered as being “involved in” a contravention if the person:

  • Has aided, abetted, counselled or procured the contravention;
  • Has induced the contravention whether by threats or promises or otherwise;
  • Has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to the contravention; or
  • Has conspired with others to affect the contravention.

Where its proven that an employer has committed a contravention and an individual has knowingly and intentionally been “involved in” that contravention, both parties can be held liable for the same offence and may be subject to separate penalties.

HR Manager Held Responsible

In the past 12 months, accessorial liability was dealt with in several notable decisions, including in FWO v Oz Staff Career Services Pty Ltd & Ors [2016] FCCA 105 where it was found that the Company had been falsifying its employment records and unlawfully deducting around $130,000 in wages from dozens of cleaners that it had employed.

It was found that the employer had been unlawfully deducting meal allowances and other fees from employees’ wages. Despite the employer admitting to a contravention of the Act, the HR Manager denied any involvement. However, the Federal Circuit Court found that the HR manager was aware of the deductions and knew that they were unlawful. Therefore, the Court found that the HR manager was “involved in” the contravention and was ordered to pay a penalty of $9,920.

Continual Breaches Treated Seriously

The Courts have clearly indicated that where an individual has previously had contact with the FWO, they will be taken to have knowledge of workplace laws and accordingly, contraventions of the Act that occur after contact with the FWO will be treated more seriously.

This was the case in FWO v AIMG BQ Pty Ltd & Anor [2016] FCCA where a director of one employer was also the director of another associated entity that had had previous dealings with the FWO. In that case the director had given the FWO an undertaking and commitment to properly pay all employees engaged by companies of which he was a director. It was then discovered by the FWO that the associated entity was not paying its employees correctly and had failed to keep proper time and wages records. Consequently, the FWO took legal action against both the company and the director. The Court found that the director’s previous dealings with the FWO and the fact that he had breached undertakings provided to the FWO made his contraventions more serious and the Court ordered the director to personally pay a penalty of $8,160.

Individuals Are Now Able to be Held Jointly and Severally Liable

Most cases involving underpayment of wages have required the Company involved to back pay wages to employees. However, a case from last year demonstrates that an individual can now be held jointly and severally liable for repaying unpaid wages to staff.

In FWO v Step Ahead Security Services Pty Ltd & Anor [2016] FCCA 1482, the Gold Coast security company involved in the contraventions had only operated for a short period of time. The Federal Court decided that it was unlikely that the Company would be able to back pay outstanding wages to former employees, as it would be more than likely wound-up in the near future. Accordingly, the Court ordered that the sole director and the employer Company would be held jointly and severally liable for the amounts underpaid. Therefore, if the Company did not back pay the wages, the Director would be personally liable for paying a total of $22,779.72. In addition to the underpaid wages, the sole director was ordered to pay a record penalty amount of over $51,000 and the employing company was ordered to pay penalties amounting to $257,000.

After the case, the Fair Work Ombudsman stated:

“Unfortunately, there are some rogue business operators who think they can short-change their staff and get away with it by liquidating their companies and hiding behind a corporate veil … so they should think again, as we will seek to hold them to account at every available opportunity” (Courier Mail 20 June, 2016)

On-going Responsibility and Liability

In FWO v Sona Peaks Pty Ltd & Anor [2016] FCCA 6015, it is now clear that the FWO will also pursue individuals for their contraventions of the Act even after their involvement with an employer has ended. This is demonstrated by the decision where the Federal Court made a garnishee order against a former director of an employer who persistently failed to pay the penalty ordered against him.

The individual in question was the sole director and secretary of a restaurant that had underpaid its staff. As result of the underpayment contraventions, the director was ordered to pay a penalty of $23,715, which he didn’t pay. To recover the amount, the Court made a garnishee order which required the director’s new employer to pay regularly until the penalty was paid in full.

What Can Businesses do?

The simple and straight-forward answer is to ensure that due diligence is applied by Managers and Directors and make sure that all staff are being paid in accordance with the law and that proper records keeping practices are in place. These cases demonstrate that the FWO is working harder than ever to ensure that employers comply with Award, Agreement and legislative requirements and it also demonstrates that the Courts are prepared to hold those individuals personally liable for a range of penalties and underpayment amounts.

It is fair to say that much of this increased activity and action by the FWO can be attributed to the 7-Eleven matter, and it now appears that other fast-food chains have been involved in underpayment of wages as well.

If Managers or Directors have any questions or concerns in relation to wage payments, or a payroll audit is required, please do not hesitate to contact us at Effective Workplace Solutions for advice

By Greg Arnold

Director and Principal Consultant

Effective Workplace Solutions