Director personally liable for wage underpayments

In a timely reminder about wage compliance, the Fair Work Ombudsman has recently persuaded a court to hold a director personally liable for underpayments made to staff. This case serves as a reminder that those who make executive decisions that result in contraventions of minimum conditions, may be held personally liable for such decisions.

What is personal liability?

The Fair Work Act 2009 (Cth) (Act) provides not only for a company to be able to be held liable for certain actions, but for individuals to be held liable too. Section 550 of the Act provides that “a person who is involved in a contravention of a civil remedy provision is taken to have contravened that provision.”. Civil remedy provisions relate to breaches of the Act that are punishable by a fine.

This provision means that anyone who, whether directly or indirectly, has been a part of or caused a contravention to occur, can be held personally liable for such a contravention. If a person is found to be personally liable, they can be fined in a personal capacity, where pecuniary penalties for individuals can range up to $18,780.00 for non-serious contraventions and up to $187,800.00 for serious contraventions. Serious contraventions involve individuals knowingly contravening the Act.

What happened in this case?

In this case, a company had been unaware if a modern award applied to their business and sought legal advice to check their award coverage. The Chief Financial Officer of the business was informed that a modern award covered the business, and following receipt of this advice, the CFO met with a number of executives in the business, including a director/co-founder. During this meeting, the CFO provided two costing models for wages to the executives, one being to pay the minimum award base rates plus casual loading and weekend penalty rates, and one being to pay just the award base rates (not including casual loading and weekend penalty rates).

The director/co-founder, believing both to be compliant options, directed the CFO to pay employees in line with the second option. Resulting from the director/co-founder’s direction, employees didn’t receive casual loading or penalty rates, and the company underpaid staff over $162,000.

Given the director/co-founder had been present at the meeting, the court ultimately found he was aware that:

• a modern award covered the business;
• that the business engaged casuals;
• that employees would work on hours which attracted penalty rates (such as weekends); and
• that employees under the chosen costing model would be paid a flat rate regardless of what time they worked.

In light of such knowledge, the court found that the director/co-founder was knowingly involved in a contravention, and therefore capable of being personally liablem“even though [he] believed he did not commit [the Respondent] to engage in any unlawful activity, and even though he believed that it was appropriate that [the Respondent] implement Costing Model B.”

Federal wage theft laws are coming – Be prepared

This case highlights that even unintentional underpayments can result in personal liability. Employers should be reminded that they should not only seek appropriate advice, but be clear on the advice, before making decisions which may impact employees (especially on key employment conditions).With wage theft laws soon to be introduced federally, proactive wage compliance programs are essential for all businesses – big or small. Our team can help to support:

• educating senior leaders and boards on their obligations under the Fair Work Act and other legislative instruments to support compliance with minimum pay and conditions;
• payroll remediation projects to assist employers to identify, quantify and repay underpayments to affected employees;
• proactive compliance programs such as annual payroll reviews for award-covered and salaried employees;
• interactions with the Fair Work Ombudsman and other regulators;
• understanding the industrial instruments applicable in your business; and
• franchisor obligations to take “reasonable steps” to ensure compliance with workplace laws by franchisees.

If you require assistance with the above, please contact NRA Legal on 1800 572 679.