Directors and advisers can be sued for a company’s wrongdoing – Fair Work and third-party liability

September 23, 2016

In a first of its kind, the Fair Work Ombudsman has commenced proceedings against an accounting firm for their involvement in contraventions of workplace laws committed by their client (Fair Work Ombudsman v Blue Impression Pty Ltd & Ors MLG2721/2015) (“Blue Impression“).

Blue Impression is a timely reminder to directors, individual managers, human resources officers, payroll officers and others of the power of the Fair Work Ombudsman to bring proceedings against any person that is involved in an employer’s contravention of the Fair Work Act 2009 (Cth) (“Act“). Pecuniary penalties may be imposed by the Court upon directors, human resources managers or any other person who is found to have been involved in a contravention of the civil remedy provisions of the Act.

To avoid being sued for someone else’s wrongdoing, read on and learn from the alleged mistakes of Ezy Accounting 123 Pty Limited…

In Blue Impression the client of the accounting firm (Ezy Accounting 123 Pty Limited) had allegedly underpaid its employees and failed to provide appropriate meal and rest breaks. Ezy Accounting 123 Pty Limited is said to have been involved in those contraventions by its conduct in processing wage payments to the employees of Blue Impression Pty Limited knowing that the payments were below the minimum wage.

Whilst at the date of this publication the case of Blue Impression has not been determined by the Federal Circuit Court of Australia, the decision of the Fair Work Ombudsman to commence proceedings against an adviser (in addition to the employer) for contraventions of the Act should be considered now by directors and advisers as a warning and then revisited when a decision is handed down by the Court.

The Fair Work Ombudsman Natalie James has provided the following comment:

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.

The conduct of the accounting firm involved

EZY Accounting 123 Pty Limited was contracted by Blue Impression Pty Limited, a Japanese fast food outlet, to provide payroll services. In providing the payroll services Ezy Accounting 123 Pty Limited processed wage payments to the employees of Blue Impression Pty Limited.

The Fair Work Ombudsman alleges that two of the employees of Blue Impression Pty Limited were underpaid for work done over an eight-month period. It is also alleged that Ezy Accounting 123 Pty Limited processed those wage payments knowing that the payments were below the lawful minimum amount.

The Fair Work Ombudsman will submit to the Federal Circuit Court of Australia that Ezy Accounting 123 Pty Limited has contravened the Act by its conduct in knowingly being concerned in the contravention of the Act by Blue Impression Pty Limited.

The legal issues to be considered by the Court in determining Blue Impression

Section 539 of the Act grants the Fair Work Ombudsman wide powers to bring actions against employers. Actions may be brought for contraventions of civil remedy provisions, which include unfair dismissal or the failure to comply with minimum wage requirements.

Section 550 of the Act provides that a person who is involved in a contravention of a civil remedy provision by another person is taken to have also contravened that provision. Put simply, if an employer has contravened the Act, a third party (accountant, director or other adviser) may also be found liable if they were involved in the contravention. A broad range of conduct falls within the ambit of section 550 of the Act. Any of the following conduct will involve the adviser in the employer’s contravention of the Act:-

Aiding, abetting, counselling or procuring the contravention;
Inducing the contravention, whether by threats or promises or otherwise;
Being, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
Conspiring with others to effect the contravention.

Last year the Fair Work Ombudsman commenced proceedings against another company in the hospitality industry and also against its director under section 550 of the Act.

In Fair Work Ombudsman v Sona Peaks Pty Ltd & Anor [2015] FCCA 137 (23 January 2015) (“Sona Peaks“) the director of Curry Garden Indian Restaurant was found to have contravened section 550 of the Act as a result of his involvement in the company’s underpayment of an employee. The employee involved was employed casually as a waitress and was covered by the Restaurant Industry Award 2010. The employee was not paid the minimum hourly rate under the Award for the work she performed.

In Sona Peaks the Court imposed a penalty on the company’s director in order to deter him specifically, but also to provide general deterrence in an industry where rates of non-compliance with minimum obligations to employees are high.

The Court was not impressed by the director’s attitude and in particular the submission that was put by the director that it has always been his belief that contract law has always been and still is superior to statute law [24] and that he would have paid the employee more had he been making a profit.

There have been a number of other cases where employers have been found guilty and penalised for the underpayment of their employees. Recently the Fair Work Ombudsman obtained its largest Court imposed penalty against 7-Eleven for the underpayment of employees.

We expect to see more cases similar to Blue Impression being pursued by the Fair Work Ombudsman in the near future and will update you of the outcome of Blue Impression when the Court publishes its judgment in due course (expected in the first half of next year).