Accountant, Director or Defendant? You Can Be Personally Liable

13 August 2019

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

You don’t? Well maybe you should, before it’s too late.

The Fair Work Act sets out the obligations of employers in a range of matters, including to pay their employees in accordance with the relevant award or EBA.  As well as the employer being liable for a breach, Section 550 provides that if you are involved in the breach of a civil remedy provision of the FWA you are liable to the same consequences as the employer.

Most accountants don’t consider the FWA important in their relationship with their commercial clients. Similarly, most directors would not have it at the front of mind, let alone franchisors, HR managers or business advisors.  However, in recent times what was a relatively obscure section in the FWA has been applied to make the principals of an accounting practice liable for breaches by their client under the Section 550 accessorial liability provisions.

If you are an advisor or director of a business and:

• the business breaches the Fair Work Act or one of the other Acts with accessorial liability provisions, and

• you were actively involved in that conduct,

you may be liable along with the business. 

In Fair Work Ombudsman v Blue Impression Pty Ltd & Ors an accountant providing payroll services to a restaurant was liable for the underpayment of an employee of the restaurant.

The court set out the following key principles:

• Mere knowledge or inaction is not enough – some act or conduct is necessary.

• They must be an intentional participant and know the essential elements of the breach.

• Imputed or constructive knowledge is insufficient but actual knowledge can be inferred from knowledge of suspicious circumstances and the decision to not make enquiries to remove those suspicions.

• Where there is a failure to pay award rates, an accessory must know what rates are being paid but need not know that the rates that were paid were below the prescribed rates.

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

The judge found that Mr Lu and his accounting firm were 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 (such as knowledge of what an employee is being paid);

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

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

even if you didn’t know the matters constituted a breach.

The Fair Work Ombudsman is very active in this area, and other 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 for underpayment of employees.

• In 2016, an 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 payment 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.

• There are several examples of franchisors being liable for the conduct of their franchisees.

These cases were about 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,

amongst other Acts, so the risk of accessorial liability is much wider than just under the FWA.

How Does This Affect You?

If you are an advisor to or director of a business and:

• the business is exposed to a claim along the lines set out under the various Acts, and

• you were actively involved in that conduct,

you may be liable along with the business. 

This is a very direct incentive for you to take all steps to ensure that any business you are involved in does not breach their obligations under the FWA or other Acts.

We are experienced 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.

Please call Hugh Maclaren, a Law Institute of Victoria accredited Commercial Litigation Specialist, or email him at hm@meerkinapel.com.au for further information.