Employment Law Update: Why Directors Must Ensure Employment Entitlements are Paid

The Fair Work Act 2009 (Cth) (the Act) primarily governs Australia’s employment law framework. Employees can determine their minimum employment entitlements either from the Act, state industrial instruments or through the relevant award. The Federal Circuit Court of Australia recently discussed the payment of employee entitlements and the obligation of what the Act refers to as “accessories”. Accessories can include, for example, a director of a company. This article will discuss the possible effects of the Court’s decision in FWO v Step Ahead Security Services Pty Ltd & Anor [2016] FCCA 1482.

What Happened?

The Fair Work Ombudsman (FWO) commenced proceedings against the director of the company, Step Ahead Security Service Pty Ltd (Step Ahead). It found that Step Ahead was not paying eight employees the minimum rate of pay they were entitled to. Although the company did not dispute the underpayments, they made no repayments to the employees. The director of Step Ahead had previously breached the Act based on outstanding entitlements and also received multiple non-compliance notices and cautionary letters.

The Fair Work Ombudsman’s Legal Argument

The FWO argued, referencing sections 55 and 545 of the Act, that the court can require “accessories”, for example, directors, to be personally liable for underpayments to employees. These sections give the Federal Court a broad power to make any order it thinks is appropriate if the Court is satisfied that a person has contravened a civil remedy provision.

The Court agreed with the FWO and proceeded to determine whether it should make, in this particular matter, an order to make the director liable to make payments to employees. Here, a number of factors were considered, including the director’s conduct and involvement in not making the appropriate minimum payments.

Director’s Liability

The Court agreed that the director of Step Ahead should be made personally liable to pay employees’ their employment entitlements. This decision is significant for many businesses who employ workers because it leaves open the possibility that not only can the company face penalties and enforcement orders, but also directors who may have been involved in decisions relating to non-compliance with the Act. Consequently, directors may be personally liable for underpayments, costs which may be on top of any civil penalties that a court can order.

Key Takeaways

This case highlights that the “corporate veil” that employers may rely on to limit their liability may be stripped back under certain circumstances. As such, employers should know when they might be liable for their conduct. If you have any questions about employment entitlements, get in touch with our employment law team on 1300 544 755.