13 March 2019
Published by Ashleigh Mills
Managers who are aware of breaches of workplace laws in their business may be personally liable for those contraventions, even if they did all they reasonably could to try to fix the breach, according to a recent decision of the Federal Circuit Court of Australia.
In the decision of Fair Work Ombudsman v Priority Matters Pty Ltd & Ors (No 4)  FCCA 56, the Court found that two directors were liable for breaches of the Fair Work Act 2009 (Cth) (FW Act) by being “involved” in underpaying 43 employees more than $1 million between the months of February 2013 and December 2013.
The finding of liability was made despite the Court acknowledging that the directors were ‘hardworking and honest people caught up in adverse events beyond their control’ and that the directors had taken all ‘reasonable steps’ to try to make payment of the employee entitlements. In this article we detail, by reference to relevant legal principles, why the Court made this finding and the lessons this provides for managers.
History of the case
The case centred upon the fact that – for varying periods of time – multiple employees of five respondent entities did not receive any wages or entitlements despite being at work. Civil proceedings were brought against each of those entities, as well as two of their directors, by the Fair Work Ombudsman (FWO) in 2016, and at first instance Judge Street held that:
That decision, as it related to the personal liability of the directors, was appealed by the FWO in 2017 and the case was remitted to Judge Driver in order to determine that question on appeal.
Applicable legal principles
Judge Driver considered the key legal principles as they relate to accessorial liability and section 550 of the FW Act. Those key legal principles are summarised below:
Separately – and importantly – it is unnecessary to prove that a person knew that their conduct was a breach of the FW Act in order for them to be involved in any particular breach, or for them to have knowledge of every individual incident of that breach or contravention. Rather it will be enough that – in the face of suspicious circumstances – a person fails to make sufficient enquiries and/or was aware of an over-arching ‘system’ of non-compliance.
Application of the law to the facts
In this case, multiple employees were simply not paid their wages or entitlements for a period of time due to the fact that the respondent companies had run out of money to pay their staff.
At all relevant times, the directors believed that they could (in part) pay the staff entitlements out of their own pockets, and that otherwise funds would be imminently received from other sources in particular the Australian Tax Office. Indeed, one of the directors, Mr Silverbrook, was at pains to stress that he did ‘everything humanely possible under the most extenuating of circumstances to ensure all employees received their lawful entitlements’.
In making his findings - and while expressly accepting that the directors had taken ‘all reasonable steps’ to try and effect payment of the employee’s entitlements during the relevant period – Judge Driver held that this fact was not relevant to the question of whether or not the directors were liable for the purposes of section 550 of the FW Act. Instead, and in applying the legal principles set out above, Judge Driver held that the directors were knowingly involved in the contraventions as they were demonstrably aware of the essential matters that made up the contraventions being that:
On that basis, it did not matter that there may have been a plausible reason for the non-payment, nor that the directors were honest about discussing those facts with their employees. It was also not held to be relevant, for example, that:
Rather, what mattered was the fact of the non-payment, and the director's knowledge of and participation in that conduct.
While the above matters were not relevant to the question of liability, they are relevant mitigating matters for the assessment of a penalty. The matter of penalty is now to be separately determined.
In light of what is set out above, and noting that the number of accessorial liability proceedings pursued by the FWO continues to increase, managers in an organisation should be aware that:
A copy of the decision referred to in this article can be accessed here.
Author: Ashleigh Mills
Michael Selinger, Partner
T: +61 2 8083 0430
Rachel Drew, Partner
T: +61 7 3135 0617
Benjamin Marshall, Partner
T: +61 3 9321 9864
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Published by Ashleigh Mills