Over the past few years, the Fair Work Ombudsman has been increasingly focused on stamping out underpayments and have been actively enforcing penalties against company directors who are found to have been “knowingly involved” in contraventions of the Fair Work Act 2009 under ‘accessorial liability’ provisions.
Directors who are directly responsible for the operation of their business can no longer plead ignorance or unawareness of systematic workplace law breaches which have occurred in their workplace as a means to avoid legal liability.
This was evidenced by the findings of a recent case in which a group of five companies were found guilty of breaching the Fair Work Act 2009 by failing to correctly pay employee entitlements.
Initially, in 2016, the Federal Circuit Court found that substantial underpayments (amounting to in excess of $1 million) over a ten month period, during which the group failed to consistently pay employee salaries. However, the Court declined to make personal liability findings against the two company directors.
This finding was appealed by the Fair Work Ombudsman and in February 2019, the Court found the directors guilty of accessorial liability for the underpayments. It was determined by the Court that the directors should have understood that underpayments were occurring due to their knowledge of the businesses’ dire financial circumstances.
It was held that the directors had “intentionally participated in the contravention through positive acts” by:
· offering staff bonuses to stay on (in the absence of regular wage payment)
· repeatedly telling employees that “payment was imminent”.
The failure of either director to inquire or ask questions about the processing of employee entitlements did not excuse them and they could not claim ignorance or willful blindness as a defence.
This decision highlights the high stakes for business operators who fail to ensure that their company is complying with its obligations under workplace laws.
The Fair Work Ombudsman has put employers on notice that ignorance is not an acceptable excuse for failing to understand and comply with minimum obligations in relation to employee entitlements.
Fair Work have also demonstrated that they are not afraid to pursue and take strong enforcement action, including litigation which can result in significant financial penalties, for reckless, deliberate and repeated breaches of the employment laws.
It is the responsibility of all employers and business owners to finding out what their minimum obligations are to their employees.
For assistance in ensuring that your business is compliant with current entitlements obligations under both modern awards and the Fair Work Act 2009, please contact a member of our HR advisory team via email at firstname.lastname@example.org or via telephone at 1300 720 004.