Personal liability for those involved in breaches of the Fair Work Act.

The Fair Work Ombudsman warns directors and others (known as “accessories”) involved in underpaying workers that they can no longer hide behind the corporate veil. In the last financial year, the Ombudsman sought personal orders against “accessories” in 92% of filed cases.

If you are a director, manager, advisor, franchisor or even payroll officer who is involved in the contravention of workplace laws, then you can be ordered to pay compensation to employees and penalties to the FWO – from your own pocket.

In this article, we examine accessorial liability and provide examples of how the Watchdog can bite you.

What is accessorial liability and how does it affect you?

Anyone who is involved in the contravention of the Act can be personally liable for the same civil penalties as the person that committed the actual contravention: Section 550 Fair Work Act.

You can be involved if you:

• Have actual knowledge of the essential facts of the contravention; and
• Knowingly participate in the contravention.

The Ombudsman does not need to prove that you knew that you were breaching the Fair Work Act to make you an accessory. The Ombudsman only needs prove that you knew all the essential facts and intentionally chose not to act on that knowledge. Some judges will accept evidence of ‘wilful blindness,’ but knowledge of the essential facts must still be proven as a fact (even if this is done by inference).

Accessorial liability is always determined on a case-by-case basis and the outcome often depends on the level of control held by the individuals in the organisation.

Keep reading for a case examination that will shed some light on accessorial liability and help you stay out of the dog-house.

Sole Directors, keep a step ahead or watch out for the bite: Fair Work Ombudsman v Step Ahead Security Services Pty Ltd & Anor [2016] FCCA 1482

Owen Jennings, the sole director of Step Ahead Security, personally paid $51,400.00 in penalties and $22,779.00 for underpayments to his employees. An injunction also prevents Jennings from contravening the Act in the future. Step Ahead paid its employees at flat hourly rates and ignored minimum wage requirements, casual loading and broken shift allowances. It also failed to provide the correct minimum shift lengths as required by the Modern Award.

Higher expectations are placed on directors and managing personnel of businesses. The court found that Jennings was aware of the requirements of the Award as the controlling mind of Step Ahead.

Family Companies, you should check your Culture and stock up on rabies vaccine: Fair Work Ombudsman v Yoguberry World Square Pty Ltd [2016] FCA 1290

Three corporate respondents, and one shareholder, who were part of the related group of companies within the Yogurberry Group, were prosecuted and ordered to pay fines totalling $146,000.00.

Yogurberry World Square underpaid their former employees and deliberately failed to keep accurate employment records as required by the Modern Award and the Fair Work Regulations. The other respondents admitted their involvement as accessories. This was the first time that penalties were imposed against the master franchisor for being an accessory to the practices of their associated companies.

Franchisors watch out: if you are a franchisor with a close relationship to a particular franchise, that might affect your culture of compliance, then it will be easier for the Ombudsman to establish your involvement in the contravention.

Individuals in the supply chain, the dog is loose and the Ombudsman is Collecting: Fair Work Ombudsman v Al Hilfi [2016] FCA 193

Coles needed trolley collectors for its Adelaide supermarket and contracted those services to the Starlink Company. Starlink was owned and operated by:

• Director/Owner: Mr Albarouki was the sole director, secretary and beneficial shareholder in two companies in the Starlink group of companies.
• Manager: Mr Ferriere was a manager employed by Starlink to negotiate the trolley collection contract with Coles Supermarkets. 

The Manager in turn sub contracted the work to Mr Al Hilfi, who had 2 part time and 2 full time trolley collectors at West Lake Coles, South Australia. Mr Al Hilfi admitted underpaying the trolley collectors. 

The Director/Owner and Manager were each ordered to pay penalties of $44,550.

The two individuals had the capacity to control, direct and influence the conduct of Mr Al Hilfi, who was underpaying his trolley collector employees and failing to issue payslips and keep employee records. The court ruled that by virtue of carrying out the business, the Starlink Director and employed Manager had knowledge of the Modern Award for trolley collector employees and failed to take any action to ensure that Al Hilfi’s complied with the Act.

The Ombudsman has been aggressively prosecuting these cases with a publicity fall out for Coles. Since this case, Coles gave the Ombudsmand an enforceable undertaking to pay unpaid wages to trolley collectors, and to set aside $500,000 back pay trust fund for other cases that might be discovered. The Undertaking is available here.

Coles has responded to the risk by stating its ethical and moral responsibility to stop exploitation of trolley collectors and by bringing its trolley collection back in house.

If you are in a position to influence an employer through a sub-contract, then you can also be liable for the employer’s conduct.

What should you do?

The Ombudsman is determined to ‘test’ the limits of accessorial liability provisions, which has broad implications for both businesses operated by sole directors and those engaging in complex outsourcing, franchise and supply-chain arrangements. These investigations and prosecutions pose a threat to your company’s brand and reputation.

Ensure that you obtain legal advice and include clauses in your contracts that require your franchisees, suppliers and staff to adhere to the requirements of the Fair Work Act.

Directors and managers beware; Ombudsman is a bloodhound and 2017 is hunting time.

Contact Peter McNamara today for advice on your duties under the Fair Work Act.