Ombudsman successful in significantly increasing directors’ penalties

In the current enforcement climate, it is valuable to note a recent case in which the Fair Work Ombudsman (FWO) was successful in obtaining an increase of fines on appeal to almost five times the initial order, for an underpaying company director.

In yet another illustration of how the courts are making an example of companies and accessories involved in underpayments, the appeal of this matter has confirmed the position that multiple contraventions should not be grouped together for the purpose of setting penalties.

The original matter involved two now-deregistered Safecorp Security Group companies who were held to have breached 12 different award terms (23 contraventions in total) as a result of paying a flat rate of $25 per hour, amounting to hundreds of individual underpayments.

Although accepting that the director believed “that payment on the basis of the flat rate would be sufficient to cover the amounts payable under such award as applied,” Federal Circuit Court Judge Manousaridis described the company’s decision to pay flat rates as “reckless” and said there was very little evidence that the director had taken corrective action, that he exhibited remorse, or that he had cooperated to any significant degree with the FWO.

On appeal, the FWO argued successfully that it was a critical error in judgment to aggregate the contraventions and treat them as “a single accessorial contravention by the director” and for the purposes of quantifying a penalty, the contraventions should have been treated as separate contraventions. On appeal, the Federal Circuit Court Judge was required to reassess appropriate penalties in the matter, resulting in an increase to the total fines from $8,300 to $39,090.

Judge Manousaridis held:

“…(a) penalty should be set to signal to employers generally the importance of complying with the Fair Work Act and with complying with awards that cover them and their employees. In the particular circumstances of this case, it is important to signal to employers of limited financial means that they will not be excused from doing that which is necessary for acquainting themselves with the awards and the terms of the awards that cover them and their employees.”

The current maximum penalty for an individual found to have breached a term of a Modern Award is  $10,200 per contravention.

If you are unsure about any entitlements owed to your employees, we implore you to please contact one of our workplace relations advisors on 1800 572 679 today.