Director’s Personal Exposure to Employee Entitlements

Introduction

This article examines a case Gavin Parsons & Associates (“GPA”) recently won in the Federal Circuit Court of Australia in proceedings seeking relief under the accessorial liability provisions of the Fair Work Act 2009 (Cth) (“FWA”).

Note:

• On 23 September 2016, GPA published an article on accessorial liability under the FWA (see article: https://gavinparsonsandassociates.com.au/directors-and-advisers-can-be-sued-for-a-companys-wrongdoing-fair-work-and-third-party-liability/)and particularly, an application that the Fair Work Ombudsman had filed against an employer, its director and an accountancy firm engaged by the employer to provide payroll services.
• Subsequent to that, the judgment of the Federal Circuit Court in Fair Work Ombudsman v Blue Impression Pty Ltd & Ors [2017] FCCA 810 was delivered. A link to the decision is here:http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FCCA/2017/810.html?stem=0&synonyms=0&query=title(Fair%20Work%20Ombudsman%20and%20Blue%20Impression%20Pty%20Ltd.

In summary

Accessorial liability concerns third party’s direct liability for contraventions by an employer of the civil remedy provisions of the FWA, should they be found to:

a. have had the requisite level of “actual knowledge” of the essential facts constituting the alleged contravention by the employer, at the time that the contravention was committed; and

b. were intentionally involved (even through omission) in the alleged contravention by the employer.

Who are potential accessories?

An accessory under the FWA may be:

1. Internal personnel within the employer entity: (e.g. directors, managers, HR officers; payroll officers); and

2. External persons/ entities who assists an employer with any aspect of HR and/or payroll processing (rates, the National Employment Standards, applicable Awards or any other FWA related entitlements).

The above examples are not comprehensive.

Liability can include orders to pay compensation, interest, costs and penalties.

The Provision

Section 550 of the FWA sets out:

Involvement in contravention treated in same way of actual contravention

(1) A person who is involved in a contravention of a civil remedy provision is taken to have contravened that provision;

(2) A person is involved in a contravention of a civil remedy provision if, and only 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.

Details of the GPA Case

In the case mentioned above, our client, the former employee, sought relief against a director of the employer entity.

The main allegations against the director concerned his alleged involvement in the company’s non-payment of our client’s statutory entitlements under an Award, both during the course of her employment and immediately following termination thereof (unreimbursed expenses; unpaid accrued annual leave; and unpaid notice in lieu).

The issues in dispute were: (a) the level of knowledge that the director had at the time of the alleged contraventions; and (b) whether the director had been “involved” in the contraventions.

What level of knowledge did the director need to have?

In terms of “knowledge”, we made submissions that our clientdid not need to prove that the director had knowledge of the specific obligations owed to our client under the particular Award and that our client was not paid in accordance thereof; but rather that the director simply knew that our client was not paid her expenses at each relevant time and that she had not received any payments that may have been due and owing to her whatsoever upon the termination of her employment.

In Fair Work Ombudsman v Grouped Property Services Pty Ltd[2016] FCA 1034 (“Grouped Property Services”), Katzmann J in obiter said at [1018]-[1019]:

Where a contravention concerns the breach of an award, in Potter v Fair Work Ombudsman [2014] FCA 187 at [81] Cowdroy J held that it was necessary that an alleged accessory have actual knowledge of the existence of the relevant award and of its application to the employees in question. In Fair Work Ombudsman v Al Hilfi [2012] FCA 1166 at [44] Besanko J considered that there was a good deal of force in the argument put against the Ombudsman that it was necessary that it be established that the alleged accessory had actual knowledge, amongst other things, that the applicable award applied to the particular employees, that the work of each of the employees gave rise to the specific entitlements, and that they were not paid those entitlements. In the absence of full argument, White J followed Potter and Al Hilfi in Fair Work Ombudsman v Devine Marine Group Pty Ltd [2014] FCA 1365 at [188], although he did not consider that it was necessary that the accessory knew the name of the award (see [191]).

The Ombudsman submits that the test set by Potter is too high. I am inclined to agree. Where the contravention is a failure to pay award rates, an accessory must know what rates are being paid but need not know that the rates which were paid were below the rates prescribed by the applicable award. As White J acknowledged inSouth Jin at [229], “[a]n accessory does not have to appreciate that the conduct involved is unlawful.” (Our emphasise added)

Therefore our submissions, in respect of the director’s knowledge in this case, concluded:

1. The director had already admitted that at all material times he was responsible for the overall direction, supervision and management of the employee; and

2. In terms of the expenses, the director only disputed the amount based on alleged double counting (not that our client had made the reimbursement requests and that that these may have not been properly paid); and

3. In terms of the unpaid accrued annual leave and unpaid notice in lieu, the director was copied into email correspondence in or around the time of the termination of our client’s employment in which these matters were specifically mentioned. Some of the reply correspondence was to the effect (incorrectly) that she had allegedly breached her employment contract and was therefore not entitled to any of the “requested” payments; and

4. All of the above amounted to at least wilful blindness (which is equivalent to actual knowledge in this context). That is, the essential facts were borne upon the director’s mind, however he had appeared to have deliberately shut his eyes to the obvious / the full details or precise proofs; and had refrained from asking questions or seeking further information – all in an effort to maintain a state of apparent ignorance.

His Honour accepted our submissions.

Involvement

In terms of “involvement”, we made submissions that the director was, at a minimum, ”by act or omission, directly or indirectly, knowingly concerned in or party to the contravention(s}”. That is, the director was engaged in conduct which implicated or involved him in the contraventions, such that there was a practical connection between him and the alleged contraventions. For instance:

1. Whilst the director sought to downplay his alleged involvement, this was inconsistent with the documentary evidence (email correspondence and other documents) which firmly established that he was the one and only person who made the relevant decisions or refrained from making them in this case;

2. Whilst the director attempted to argue that there was no relevant involvement by him (rather the non-payments occurred in an insolvency context):

i. None of the due and payable reimbursement expenses had been repaid. These were incurred by our client between 26 June 2014 – 23 March 2015;

ii. Our client resigned on or about 24 April 2015;

iii. The company went into administration on 29 April 2016;

iv. All of the payments were due to our client well before the company went into administration;

v. The company had engaged lawyers in or around 24 April 2015 in an attempt to sue our client;

vi. The director and his wife continued to receive remuneration from the company in the same amounts that they had been receiving from 26 June 2014 – 29 April 2016;

vii. There was no evidence that any of the other employees did not receive payment of their entitlements in the usual fashion throughout the above period.

His Honour accepted our submissions.

Result

Accordingly, His Honour made orders against the director personally for payment of various entitlements to our client, plus interest and costs.

Contact usWe act for not only aggrieved employees but also, more often, employers. With the increasing level of enforcement activity of the Fair Work Ombudsman in this area, business people need to be acutely aware that they may face direct personal exposure to contraventions of the civil remedy provisions of the FWA. This can include not only financial compensation, interest and costs but also penalties. If your require advice in relation to this area you should contact us today.