A basic principle of corporate law is that individuals have no liability for the debts of a company. However, this is being eroded in a number of areas, including workplace relations law. The position now is virtually that anyone who knows of Fair Work Act breaches occurring and does nothing is potentially personally liable. This affects owners, managers and internal and external advisors in particular.
The Fair Work Act provides that involvement in a contravention is treated in the same way as the actual contravention. Given the difficulties that employees can have in recovering money from employers, the Fair Work Ombudsman is increasingly taking action against individuals under these provisions. Courts have imposed penalties against:
- directors for underpayments where businesses have been “phoenixed” with a new company emerging from the ashes of a liquidation;
- HR Managers where they have “followed orders” resulting in the underpayment of employees;
- general managers for “calculated ignorance” of legal obligations to employees;
- a master franchisor for knowing of underpayments by a franchisee;
- most recently, an external accountancy firm for knowingly processing underpaid wages.
Underpayment of wages and unlawful deductions are the most common issues but accessory liability can apply to any contravention of the Fair Work Act including workplace rights breaches. Individual penalties can be up to $10,800 per breach along with payment of any outstanding monetary amounts, not to mention the cost and stigma of public naming in legal proceedings and the media.
The scope for potential personal liability is only likely to expand in coming years. Franchise and labour hire arrangements are already the subject of coming legislative changes. The lesson is that all persons in responsible internal and external positions (including professional advisors such as accountants and lawyers) need to be conscious of the need to not just sit by if they know or should know or reasonably suspect that the wrong thing is being done.
We can help with advice and assistance to avoid these situations arising.