COURTS & PARLIAMENT CONTINUE TO EXTEND LIABILITY OUTSIDE EMPLOYMENT RELATIONSHIP
May 30, 2017
Fair Work Ombudsman v Blue Impression Pty Ltd & Ors  FCCA 810 (28 April 2017) Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017
The Australian Parliament is currently considering proposed amendments to the Fair Work Act 2009 (the Act) which will increase the power of the Fair Work Ombudsman (FWO) to pursue penalties against entities and individuals who are ‘involved’ in contraventions of workplace laws, even when they are not the direct employer. These amendments would also increase the maximum civil penalties that may apply to an accessory tenfold.
Accessorial liability and the Protecting Vulnerable Workers Bill
Under s550 of the Act, a person who is involved in a contravention of the Act can be held personally responsible for that contravention and can be ordered by a court to pay a penalty or compensation. This is known as accessorial liability. It has traditionally been used by the FWO to hold company directors personally accountable for the actions of their company, effectively meaning that liquidating a company is no guarantee of avoiding the consequences and non-compliance with the Act.
However, liability under s550 of the Act can extend to anybody involved in a contravention, for instance, the directors, former directors, general managers and even human resources managers of a non-compliant employer. Accessorial liability also extends outside the employer-employee relationship to subcontractors and principals, and to external advisors such as lawyers and accountants.
In the recent case of the Fair Work Ombudsman v Blue Impression Pty Ltd & Ors, the FWO brought proceedings against the employer, the employer’s manager and its accountants, for breaches of the Act involving the underpayment of wages. The employer and manager made admissions of such contraventions of the Act.
The accountants, who provided payroll services to the employer, were also pursued by the FWO under Section 550 of the Act as an accessory to such contravention. Upon hearing the matter in the Federal Circuit Court of Australia, Judge O’Sullivan identified the following as what is required for a person to have accessorial liability for a breach:
- Have knowledge of the essential facts constituting the contravention;
- Must be knowingly concerned in the contraventions;
- Must be an intentional participant in the contravention based on actual not constructive knowledge of the essential facts constituting the contravention, although constructive knowledge may be sufficient under Section 550(2)(c) of the Act in cases of wilful blindness; and
- Need not know that the matters in question constituted a contravention.
Ultimately, Judge O’Sullivan found the accountants had shut their eyes, and in effect, the accountants’ director had demonstrated a ‘wilful blindness’. On this basis, the accountants were found to be liable as an accessory under Section 550 of the Act.
This means that the FWO has the scope to hold individuals and entities both inside and outside the direct employee/employer relationship accountable, where they have been involved, directly or indirectly, in contraventions of workplace laws. This can also include circumstances where a party is ‘wilfully blind’ and ought to have known a contravention was taking place, as was determined by the Federal Circuit Court to have occurred in the above case.
The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (Bill) was introduced in Parliament in March 2017 and is currently subject to an Inquiry by the Senate Education and Employment Legislation Committee, with a report scheduled to be released this month. As part of the amendment, it is proposed that the FWO’s power be extended further outside the employment relationship in order to hold franchisors and holding companies responsible for certain contraventions of the Act by their franchisees or subsidiaries, where they knew, or ought reasonably to have known, of the contraventions and failed to take reasonable steps to prevent them.
Penalties and compensation orders
Although accessorial liability has been part of our industrial relations regime since the Workplace Relations Act 1996 (Cth), in recent years there has been a noticeable upwards trend in the number of matters where accessorial liability has been pursued in the courts, together with a trend of increasing penalties awarded by the courts to those found liable as an accessory.
During 2014-15, the FWO initiated 50 civil penalty actions, 26 of which involved an accessory who was involved in the contravention, such as a director. Total penalties of over $570,000 against the relevant individuals were ordered by the Court. In addition to these financial penalties, the FWO also sought orders for back pay or compensation, injunctions and/or other requirements to rectify breaches, including freezing orders on companies and individuals.
In the 2015-16 year, the FWO again initiated 50 civil penalty actions, of which 46 involved an accessory – nearly double the number in the previous year – resulting in total penalties of more than $680,000 being ordered by the Court against various individuals (including directors, a union secretary, and a human resource officer). Of note, in March 2016, Tasmanian businesswoman Wendy Langridge received the then highest individual penalty of $98,000 for ‘heartless’ treatment of workers. Seven of these matters also involved companies that had contracted work to other businesses. Over $70,000 in penalties related to contraventions in supply chains, such as a security company which was found liable in relation to underpayments by one of its subcontractors.
Although figures for 2016-17 are not available, the FWO indicated in March 2017 that ‘this year is tracking along similar lines’ to 2015-16. This includes a continued escalation in penalties being awarded by the Courts. In November 2016, a Federal Circuit Court made orders for the highest ever penalty against an individual, ordering Brisbane businessman Vigal Girish Shetah to pay a penalty of $126,540, together with orders that he back pay migrant workers almost $60,000.
The Bill now before Parliament seeks to strengthen and increase the penalty framework for breaches of workplace laws. It would introduce new penalties that are 10 times the current amounts for ‘serious contraventions’ where the conduct was deliberate and part of a systematic pattern. The Bill also proposes to increase penalties for failures in record keeping, with a doubling of penalties for failure to keep proper records or issue payslips, and a threefold increase in penalties for record keeping failures that are deliberate and misleading.
Looking to the future
It is clear that the FWO is using accessorial liability increasingly as a compliance tool by holding individuals involved in contraventions of workplace laws to account. As a result, responsibility for contraventions of the Act may extend beyond the direct employer to include advisers as well as further up the chain of contracts, if that contracting entity has directly or indirectly been in anyway knowingly concerned with conduct in question.
In recent years, a number of large corporations – including various ‘household names’ such as Myer, Cadbury and Mars – have been high profile examples of companies targeted by the FWO for being associated with the exploitation of workers by their subcontractors and franchisees, even though none of these major companies was a direct employer of the workers. Recent court decisions and the proposed amendments to the Act make it likely we will continue to see liability being extended beyond the employer-employee relationship in various industries and workplaces, in recognition of modern corporate workplace practices.
Authored by Bruce Butler, Partner and Madelaine August, Senior Associate, Melbourne
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