2016: The year of accessorial liability

by Contributor05 Dec 2016
HR directors and corporate leaders beware: the FWO is taking legal action against individuals who contravene the Fair Work Act 2009 (Cth). Athena Koelmeyer outlines the repercussions

In 2016 we have seen an increase in the Fair Work Ombudsman’s (FWO’s) efforts to pursue directors and managers, including HR and payroll managers, for their involvement in contraventions of the Fair Work Act 2009(Cth) (FW Act).

Legal action against individuals is made possible through Section 550 of the FW Act, which aims to personally expose those who are the controlling “hands and minds” of an organisation. Section 550 intends to make decision-makers liable for their decisions, removing the opportunity for them to hide behind the “corporate veil”. This is generally referred to as “accessorial liability”.

Accessorial liability attaches when an individual is “involved in” a contravention of the FW Act. An individual will be taken to be “involved in” a contravention if the person:
  • aids, abets, counsels or procures the contravention;
  • induces the contravention whether by promises or threats;
  • is in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
  • conspires with others to affect the contravention.
Generally, where it is established that an employer has committed a contravention and an individual is “involved in” that contravention, both parties can be held responsible for the same offence and can be subject to separate penalties.

Notable decisions
During 2016, accessorial liability was addressed in a number of notable decisions, including FWO v Oz Staff Career Services Pty Ltd & Ors [2016] FCCA 105 where an HR manager was ordered to pay a penalty of $9,920.

In that case, the employer had been unlawfully deducting meal allowances and administration fees from employees’ wages. The employer admitted to contravening the FW Act by doing so. However, the HR manager denied any involvement. 

The court found that the HR manager was aware of the deductions and knew that they were unlawful. This was sufficient to show that the HR manager was “involved in” the contravention and subject to a penalty.

Throughout 2016, the courts repeatedly said that where an individual had previously had contact with the FWO, they would be taken to have knowledge of workplace laws and, accordingly, contraventions of the FW Act that occurred after contact with the FWO would be treated more seriously.

This was the case in FWO v AIMG BQ Pty Ltd & Anor [2016] FCCA, where the director of the employer was also the director of an associated entity that had had previous dealings with the FWO. Those previous dealings included the director signing an enforceable undertaking committing to properly paying all employees engaged by companies of which he was a director. When it was discovered that this employing entity was not paying its employees correctly and had failed to keep proper time and wages records, the FWO took legal action against both the employer and the director. The court found that the director’s previous dealings with the FWO made his contraventions of the FW Act more serious and the court ordered the director to personally pay a penalty of $8,160.

In the past, most cases involving accessorial liability and underpayment issues have required the company involved to back-pay wages to employees. However, a case from 2016 has altered that formula as an individual was held jointly and severally liable for restoring underpaid wages to former employees.

In that case, FWO v Step Ahead Security Services Pty Ltd & Anor [2016] FCCA 1482, the company involved in the contraventions only operated for a short time and the court considered it likely that the company would soon be wound up, resulting in an inability to back-pay outstanding wages to former employees. The court ordered that the sole director and the employer company would be jointly and severally liable for the amounts underpaid, meaning that if the company could not back-pay the wages, the director would be personally liable for paying that amount (a total of $22,779.72). In addition to the underpaid wages, the director was ordered to pay penalties amounting to $51,400.00 and the employing company was ordered to pay penalties amounting to $257,000.00.

The FWO will also pursue individuals for their contraventions of the FW Act even after their involvement with an employer has ended. This is demonstrated by the decision of FWO v Sona Peaks Pty Ltd & Anor (No.3) [2016] FCCA 6015, where the court made an ‘attachment of earnings’ order (sometimes also called 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 company that underpaid its restaurant workers. As result of the underpayment contraventions, the director was ordered to pay a penalty of $23,715.00, which he didn’t pay. To recover the amount, the court made an attachment of earnings order that required the director’s new employer to regularly contribute a portion of the director’s wages into a fund until the penalty was satisfied.

Future safeguarding
Collectively, these cases demonstrate that the FWO is ready and willing to involve individuals such as directors and HR managers in contraventions of the FW Act, and is prepared to hold those individuals personally liable for a range of penalties and underpayment amounts.

We don’t see this trend changing in the near future, so when looking to 2017, HR professionals should ensure that employees are being paid correctly, that they have good record-keeping practices in place, and that if a problem is identified it is dealt with appropriately, not ignored.
 
KEY 2016 EMPLOYMENT LAW AND IR TRENDS

The rise of the sharing and gig economy – When are contractors actually employees and who is really controlling the work? Questions about the employment entitlements of drivers, riders and taskers dominated in 2016.

The FWO and underpayments – Every week the FWO has announced that it has recovered underpayment
amounts for employees either by working with employers or through the legal system. The FWO is showing no signs of altering its course, so we expect a continued push for wage rectification and examination of supply chains into 2017.

Out-of-hours conduct issues – Out-of-hours conduct can impact on an employer’s reputation and
business interests and can include an employee’s actions on social media. We have noticed an increase in the amount of disciplinary action and number of dismissals occurring as a result of out-of-hours conduct.

Employees behaving badly and the management of unacceptable conduct in the workplace – This year saw a number of cases about employees lashing out angrily or using bad language in the workplace. As a result, we have noticed an increase in unfair dismissal cases centred on issues of conduct, and an upward trend in the industry’s discussion of how to manage unacceptable conduct.

The rejection of enterprise agreements for minor technical defficiencies – This year saw an increase in EA applications being rejected by the FWC for minor procedural issues, especially surrounding the Notice of Employee Representational Rights. Employers, unions and the FWC have all expressed their frustration with this issue at some point this past year.

Athena Koelmeyer is the principal and director of Workplace Law. For further information, phone +61 2 9256 7500 or visit workplacelaw.com.au.

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