By Ashleigh Mills (Associate) of Holding Redlich.
Managers who are aware of breaches of workplace laws in their business may be personally liable for those contraventions, even if they did all they reasonably could to try to fix the breach, according to a recent decision of the Federal Circuit Court of Australia.
In the decision of Fair Work Ombudsman v Priority Matters Pty Ltd & Ors (No 4)  FCCA 56, the Court found that two directors were liable for breaches of the Fair Work Act 2009 (Cth) (FW Act) by being “involved” in underpaying 43 employees more than $1 million between the months of February 2013 and December 2013.
The finding of liability was made despite the Court acknowledging that the directors were ‘hardworking and honest people caught up in adverse events beyond their control’ and that the directors had taken all ‘reasonable steps’ to try to make payment of the employee entitlements. In this article we detail, by reference to relevant legal principles, why the Court made this finding and the lessons this provides for managers.
History of the case
The case centred upon the fact that – for varying periods of time – multiple employees of five respondent entities did not receive any wages or entitlements despite being at work. Civil proceedings were brought against each of those entities, as well as two of their directors, by the Fair Work Ombudsman (FWO) in 2016, and at first instance Judge Street held that:
- the five employer entities had indeed contravened the FW Act as a consequence of their non-payment to employees, but
- the two directors were not ‘knowingly involved’ in those contraventions and, as such, were not liable in their personal capacity for the same.
That decision, as it related to the personal liability of the directors, was appealed by the FWO in 2017 and the case was remitted to Judge Driver in order to determine that question on appeal.
Applicable legal principles
Judge Driver considered the key legal principles as they relate to accessorial liability and section 550 of the FW Act. Those key legal principles are summarised below:
- a person will only be held to be accessorily liable for a contravention of the FW Act if they are ‘involved in a contravention’
- a person will only be ‘involved in a contravention’ if they have intentionally participated in the contravention
- intentional participation requires actual, not constructive knowledge of the essential matters that make up the contravention – and that knowledge must exist as at the time of the contravention.
Separately – and importantly – it is unnecessary to prove that a person knew that their conduct was a breach of the FW Act in order for them to be involved in any particular breach, or for them to have knowledge of every individual incident of that breach or contravention. Rather it will be enough that – in the face of suspicious circumstances – a person fails to make sufficient enquiries and/or was aware of an over-arching ‘system’ of non-compliance.
Application of the law to the facts
In this case, multiple employees were simply not paid their wages or entitlements for a period of time due to the fact that the respondent companies had run out of money to pay their staff.
At all relevant times, the directors believed that they could (in part) pay the staff entitlements out of their own pockets, and that otherwise funds would be imminently received from other sources in particular the Australian Tax Office. Indeed, one of the directors, Mr Silverbrook, was at pains to stress that he did ‘everything humanely possible under the most extenuating of circumstances to ensure all employees received their lawful entitlements’.
In making his findings – and while expressly accepting that the directors had taken ‘all reasonable steps’ to try and effect payment of the employee’s entitlements during the relevant period – Judge Driver held that this fact was not relevant to the question of whether or not the directors were liable for the purposes of section 550 of the FW Act. Instead, and in applying the legal principles set out above, Judge Driver held that the directors were knowingly involved in the contraventions as they were demonstrably aware of the essential matters that made up the contraventions being that:
- wages and entitlements were payable to the employees
- the employees, for varying periods, did not receive any such wages or entitlements.
On that basis, it did not matter that there may have been a plausible reason for the non-payment, nor that the directors were honest about discussing those facts with their employees. It was also not held to be relevant, for example, that:
- the employees had previously received payments well in excess of their entitlements
- the employees were ultimately repaid all monies they otherwise would have been entitled to receive
- a reason for the non-payment of monies was an unforeseeable ‘hold up’ of monies payable to the companies from the Australian Tax Office.
Rather, what mattered was the fact of the non-payment, and the director’s knowledge of and participation in that conduct.
While the above matters were not relevant to the question of liability, they are relevant mitigating matters for the assessment of a penalty. The matter of penalty is now to be separately determined.
In light of what is set out above, and noting that the number of accessorial liability proceedings pursued by the FWO continues to increase, managers in an organisation should be aware that:
- Scope of ‘Persons’ – A director is not the only person who can be ‘relevantly involved’ in a contravention of the FW Act. ‘Persons’ for the purposes of s550 of the FW Act can include (without limitation) accountants, HR Managers, payroll officers and other managers
- Good intentions are not relevant – While it may impact upon the penalty ultimately imposed by a Court, the fact that a person may genuinely and reasonably be taking steps to rectify the contravention and/or that the person has rectified the contravention, will not affect an assessment of liability – that is, whether the person is ‘knowingly involved’ in that contravention
- Ignorance of the law is no excuse – It is no excuse for a person to say that they were not aware that particular conduct or actions breached the FW Act. As such, all managers must ensure that they are aware of and keep up to date with employment law obligations.
A copy of the decision referred to in this article can be accessed here.
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This article was originally published on the Holding Redlich website and has been reproduced with permission.