PERSONAL LIABILITY FOR UNDERPAYMENT OF WAGES

PERSONAL LIABILITY FOR UNDERPAYMENT OF WAGES

The Federal Circuit Court of Australia in FWO v Liquid Fuel Pty Ltd & Ors held that a director and two site managers of a company that operated a BP service station were liable as accessories for the company’s underpayment of wages and subsequent breaches of the Fair Work Act 2009 (Cth) (the “FW Act”).

Facts

The Fair Work Ombudsman (the “FWO”) brought an action against the company alleging:

1.  it had failed to pay two service station attendees on student visas their pay entitlements, including the correct hourly rate, overtime, casual loading and penalty rates resulting in an underpayment of $110,000.00;

2.  it breached the FW Act by not keeping proper records and failing to issue compliant pay slips to the employees; and

3.  the Managers and Director of the company were personally liable as accessories of the actions above.

To prove the Managers and Director were an “accessory”, it had to be shown that the Managers and Director had actual knowledge that:

1.  an industrial instrument existed;

2.  the industrial instrument applied to the employees; and

3.  the rates being paid to the employees were less than the minimum rates of pay and the correct pay slip/record keeping obligations were not being complied with.

The Managers and Director submitted that they “did not know what was going on”, for example, they did not know that the rates being paid were incorrect.  Therefore, they argued that they did not have the required knowledge which would make them liable for the company’s actions.

The FWO’s position was that the Managers were responsible for issuing pay slips, making and maintaining employee records, rostering and calculating employee wages based on hours worked and the Director was responsible for setting and adjusting employee wages.

Accordingly, the FWO argued that the Managers and Director did have actual knowledge and knowingly participated in each of the company’s alleged contraventions.

Further, the FWO submitted that the contraventions occurred through the conduct of the Managers and Director.  Specifically, it argued that the Managers and Director deliberately refrained from making enquiries about the employees pay entitlements and were “wilfully blind” to their obligations.

Decision

The Court rejected the Managers and Director’s claims that they did not know what was going on.  Their Honour concluded that the Director was “wilfully blind” as he deliberately did not seek to make enquiries and held that the Managers had actual knowledge of the contraventions and knowingly took part in the breaches.

What does the decision mean?

This decision highlights the need for directors, managers and even payroll and HR, to be vigilant about ensuring that obligations owed to employees are complied with.  If these obligations are not complied with, under section 550 of the FW Act, such individuals may be found personally liable for contraventions of the FW Act if it is found they had actual knowledge or constructive knowledge of such contraventions as a result of willful blindness.

If you are unsure of your obligations to employees and whether these obligations are being complied with, to avoid the risk of penalties being imposed, contact the team at HR Law for advice.

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