Accountant, Director or Defendant? Are you personally liable?

11 October 2017

As an accountant or director, you regularly think about the impact of Section 550 of the Fair Work Act 2009 (FWA), and similar provisions, don’t you? 

Well maybe you should, before it’s too late.

In the decision of the Federal Circuit Court in Fair Work Ombudsman v Blue Impression Pty Ltd & Ors the court held that an accountant providing payroll services to a restaurant was liable for contraventions of the FWA in the underpayment of an employee of the restaurant.

The judge found that accountant, Mr Lu, knew the restaurant was underpaying its employees, and that as part of his key role in determining the restaurant’s obligation to its employees, sought to remain ignorant and deliberately refrain from asking questions or seeking further information.

The judge found that Mr Lu and his accounting firm was liable, along with the restaurateur, for the breach of the FWA.

This finding should carefully be noted by accountants, directors and business advisers because you too could be liable where you:

  1. have knowledge of the essential facts constituting a contravention (such as knowledge of what an employee is being paid);

  2. are knowingly concerned in the contravention (for example, by advising on the obligations of the employer or managing its payroll);

  3. are an intentional participant in the contravention based on actual not constructive knowledge of essential facts constituting the contravention,

even if you didn’t know the matters in question constituted contravention.

The FWA sets out the obligations of employers in a range of matters, including the obligation to pay their employees in accordance with the relevant award or EBA.  In addition to the employer being liable for a breach, Section 550 provides that the person who is involved in the contravention of a civil remedy provision of the Act is taken to contravene that provision, and involvement in contravention attracts the same consequences as actual contravention.

Most accountants would not consider the FWA as important in their relationship with their commercial clients. Similarly, most directors would not have it at the front of mind.  However, what was a relatively obscure section in this Act has, in recent times, been applied to make accountants and other professional advisors liable for breaches by their clients under the accessorial liability provisions. It has also been used to find directors, HR managers and other officers of companies personally liable for the breaches by the company.

In the judgment, the court reviewed the key cases in relation to accessorial liability and derived the following key principles:

  • mere knowledge or inaction is not sufficient – some act or conduct on their part is necessary.

  • They must be an intentional participant, with knowledge of the essential elements of the contravention.

  • Actual knowledge of the elements is needed, but that can be inferred from the combination of their knowledge of suspicious circumstances and the decision to not to make enquiries to remove those suspicions.

  • Where contravention is a failure to pay award rates, they must know what rates are being paid but need not know that the rates that were paid were below the rates prescribed by the applicable awards.

The Fair Work Ombudsman is very active in this area, and other recent examples include:

  • In 2017 a fine of $20,000 was imposed on a director of a food business underpaying its employees.

  • The Federal Circuit Court made freezing orders against a trekking company and fined the director $12,000 over the underpayment of employees.

  • In 2016, a HR Manager was found accessorily liable and ordered to pay a penalty of $9,920.00 in relation to meal allowances.

  • A director of an employer was ordered to pay a penalty of $8,160.00 in respect of incorrect payments of employees.

  • A national security company was fined $20,400 for knowingly allowing a contractor to underpay its employees.

  • A sole director was liable, with his company, for the back payment of wages totalling $22,779.72 plus penalties amounting to $51,400.00 and the company was ordered to pay penalties of $257,000.00.

These cases relied on Section 550 of the FWA, but a similar obligation is found under:

  • the Australian Consumer Law for misleading and deceptive conduct;

  • the Australian Competition and Consumer Act for cartel behaviour;

  • the Corporations Act for breaches of duties of companies;

  • the Environment Protection Act for breaches of environmental laws

among other Acts.

How Does This Affect You?

If you are an advisor to businesses or a director or officer of a business which is run in a way so that it is exposed to a claim under Section 550 or the similar provisions, and you were actively involved in that conduct, you may be personally liable along with the company.  This is a further, and very direct, incentive for you to take all steps to ensure that any business you are involved in does not breach their obligations.

We also recommend that you review your directors and officers policy or other relevant insurance and any deed of indemnity to confirm that you are covered for the legal costs of defending such a claim, subject to the restrictions of Section 199A(3)(b) of the Corporations Act, which stops a company from indemnifying their directors and officers, where they are found guilty.

We are experienced in dealing with all the relevant legislation in this area and can assist you to ensure that you are not exposed to such a claim or to resolve the matter to your best advantage if you are exposed.

Please call Hugh Maclaren, a Law Institute of Victoria accredited Commercial Litigation Specialist, on the number below or email him at for further information.