Corporate Veil does not shield Directors for breaches of the Fair Work Act

FWO taking IT services business and director to court.
 
17th March 2021

Highlights

  • Calling all ICT Company Directors. Did you know that the Corporate Veil does not shield Directors for breaches of the Fair Work Act? Michelle Cowan of Active Law (ACS Queensland’s Preferred Legal Partner) steps through the latest case update in relation to an IT services business, currently before the Courts.

Following up on recent face to face presentations with ACS Queensland members, as an example of the issues discussed, the Fair Work Ombudsman (FWO) has recently commenced legal action in the Federal Circuit Court against the operators of an IT services business, and the company director.

The FWO is seeking penalties against the company and the director. The company faces a maximum potential penalty of up to $33,300 and the director faces a maximum potential penalty of up to $6,660, in addition to paying the employee any underpayments plus superannuation and interest, which is undisclosed but expected to be a substantial amount.

The FWO commenced its investigation after receiving a request for assistance from an employee who had been engaged to work full time for the company as a salesperson and service technician.

A Fair Work Inspector issued a Compliance Notice to the employer in September 2020 after forming a belief that, due to the employee only being paid sporadically, he was owed 107 weeks of unpaid wages under the General Retail Industry Award 2010, for work performed between 2015 and 2019. Annual leave entitlements were also allegedly underpaid.

The FWO has alleged the company failed to comply with the Compliance Notice without reasonable excuse.

The notice required the employer to calculate and back-pay the worker’s outstanding entitlements. The director was allegedly involved in the breach and is considered to be personally liable for the breaches in addition to the liabilities of the company.

 

Commentary from FWO

Fair Work Ombudsman Sandra Parker said:

“Compliance Notices are important tools used by inspectors to deal with apparent contraventions of the Fair Work Act or industrial instruments, most typically Modern Awards,” … “Where employers do not respond to or comply with these Notices, we will take appropriate enforcement action to protect employees. A court can order a business to pay penalties for not complying with such a Notice, in addition to back-paying workers as appropriate.” … “Any employees with concerns about their pay or entitlements should contact the Fair Work Ombudsman for free assistance.”

 

Corporate Veil does not extend to Fair Work Act

Directors of companies often mistakenly believe that they cannot be held personally liable for breaches of a company. However, the Fair Work Act 2009 (the Act) specifically extends liabilities to individuals who have participated in a contravention of a civil penalty provision of the Act.

Commonly directors of businesses are found to be personally liable for breaches of the Act but, the Act does not limit itself to directors. Section 550 of the Act provides that a person who is involved in a contravention of a civil remedy provision is taken to have contravened that provision.

 

Accessorial liability

Under the Act, a person is involved in a contravention of a civil remedy provision if, the person:

a)      has aided, abetted, counselled or procured the contravention; or

b)      has induced the contravention, whether by threats or promises or otherwise; or

c)       has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or

d)      has conspired with others to effect the contravention.

If a person is taken to have contravened a civil remedy provision, and the person’s contravention is a serious contravention under section 557A(5A), that may attract higher maximum penalties.

Concerningly for officers and advisors, if it is proven that they knew about the contravention but did nothing to correct the situation, they too may be held personally liable. There have been cases where accountants, bookkeepers and HR Managers have been linked to breaches and required to pay penalties.

 

Pre-emptive professional advice

With an ever-increasing focus on compliance with the Act, it is imperative that businesses seek professional advice, so they understand their obligations as an employer, even if they believe they are engaging with contractors. The cost of that advice will help you to establish your business safely and avoid possible penalties later. In the director’s case the advice that could have avoided his current situation would likely have been substantially less than the $33,960 in penalties plus interest for underpayments that he and his company now face. Failing pre-emptive advice, getting urgent legal advice when he received the compliance notice may have avoided the cost and time of dealing with a matter in the Federal Court.

If you are starting or growing a small business, and need to employ staff, we recommend that you seek pre-emptive legal advice, so you understand the risks relating to employment law and your business. Active Law can assist you with employment law advice as well as other essential commercial legal advice for SME’s: like IP; business structure; asset protection; and insurance advice.

Our team have a wealth of experience and a genuine focus on helping clients find practical solutions.

Active Law offers ACS members a 10% discount for legal services up to $2,000 and a 5% discount thereafter. You can reach us at [email protected] or (07) 3160 0000.

 

Disclaimer – Reliance on Content

The material distributed is general information only. The information supplied is not and is not intended to be, legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.