BUSINESS ADVISORS BEWARE: Liability Under the Fair Work Act 2009

Provisions extending liability for contraventions to people ‘involved’ in the breaches of workplace laws and relevant conduct are not new, having appeared in workplace relations legislation for over a decade.

During 2016, the ‘accessory liability provision’ currently contained in Section 550 of the Fair Work Act 2009 (FW Act) was successfully used by the Fair Work Ombudsman (FWO) to achieve a number of notable decisions which significantly increase the risk for all advisors to business. The trend looks set to continue into 2017.

Orders have been made against HR managers, payroll and other administrative staff, staff employed to perform recruitment and supervisory duties, entities higher up the supply chain and head franchisors:

 “We have been concerned about the role of key advisers, such as accountants and HR professionals, in some serious and deliberate contraventions. Small business relies heavily on trusted advisers, and if they give incorrect or bad advice, or deliberately assist with the contravention, should they not be held accountable? In situations where we believe accountants or other professionals knowingly facilitate contraventions of workplace laws, we are prepared to hold them to account.” – Fair Work Ombudsman Natalie James

The current maximum pecuniary penalties for each breach of the FW Act are $10,800 for an individual and $54,000 for a company.  The vast majority of prosecutions by the FWO involve multiple breaches.

In 2015–16, 46 civil penalty litigations commenced involved an accessory — a company or individual other than the employing entity who was involved in the contravention.  Penalties of more than $684,820 were ordered against individuals named as accessories during the year, including directors, a union assistant secretary and human resource officer. A further $35,400 was ordered against businesses, including a security company that was an accessory to the breaches of its underpaying subcontractor.

Director personally liable for underpayments – June 2016

Prior to June 2016, orders against directors and accessories were confined to the imposition of pecuniary penalties.  In Fair Work Ombudsman v Step Ahead Security Services Pty Ltd & Anor, for the first time the FWO sought an order that an individual be liable for the underpayments.  The court ordered that the sole director and the employer company Step Ahead Security Services Pty Ltd would be jointly and severally liable for the $22,779.72 underpaid.  The company and the director also received penalties of $257,040 and $51,408 respectively.

HR Manager liable – October 2016

A significant pecuniary penalty of $9,920 (40% of the maximum penalty of $24,800) was ordered against an employee HR Manager “involved in” a company’s contraventions of the FW Act and the Cleaning Services Award 2010.   The employer company had deducted administration fees and meals from 102 cleaners’ wages but failed to reflect the deductions on payslips.  The Court said of the HR Manager’s involvement:

 “the [HR Manager] was well aware of the contraventions… He was aware that the deductions were being made… He thus had knowledge of the constituent parts of the contravention, albeit that he may not have known which section of the FW Act, if any, was capable of being contravened. This state of knowledge, in my view, is sufficient, if nothing else, to constitute involvement within the meaning of s.550(2)(c) of the FW Act. A person who knows of the contravention and takes no steps to correct it is clearly in some way, at least indirectly, a person who has “in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention.”

Franchisor liability – November 2016

The FWO successfully obtained orders for the first time against a master franchisor in respect of a franchisee underpaying four young foreign workers a total of $17,827.  The case concerned the Yogurburry frozen yoghurt chain of stores.  In addition to ordering that the group of companies engage professionals to conduct an external audit of all Australian stores within 60 days, the Court imposed penalties of $146,000 as follows:

• $75,000 against Yogurberry World Square Pty Ltd which directly employed the workers
• $25,000 against master franchisor YBF Australia Pty Ltd, $25,000
• $35,000 against the group’s payroll company, CL Group Pty Ltd
• $11,000 against YBF Australia’s part-owner Soon Ok Oh

 Accountants’ liability – February 2017

In a first for the FWO, proceedings were issued in late 2015 against a Melbourne accounting firm who provided payroll services to a client in the fast food industry:

 “We allege that this firm processed wage payments for workers at a Melbourne fast food restaurant, despite having explicit knowledge that those payments were well below the award rate. The accounting firm now faces penalties of up to $51,000 per breach. Our view is that accountants’ professional responsibility demands that they cannot close their eyes to breaches of the law by their clients.” Fair Work Ombudsman Natalie James

The hearing to determine the penalty to be imposed against the accounting firm in respect of agreed contraventions of the FW Act and Fast Food Industry Award 2010 will be held in mid February 2017.

Robertson Hyetts can provide assistance in identifying the correct awards, drafting employment contracts, policies and responding to the FWO in relation to complaints, audits and litigation.  Speak to our employment law team today on 03 5434 6666.