Directors of companies that underpay their workers are at risk of being personally liable for breaches of the law.
Directors of companies that underpay their workers are at risk of being personally liable for breaches of the law. This could include personal liability of directors for the entire amount of underpaid entitlements, as well as significant penalties. Directors could soon also face the risk of jail time for deliberately and systematically underpaying employees.
The recent case of Fair Work Ombudsman v Priority Matters Pty Ltd & Anor (No 4)  FCCA 56, is an important reminder of the personal risks for directors when employees are not paid in accordance with the law.
Under FW Act, an individual will be ‘involved’ in a contravention if that individual has (amongst other things) induced the contravention, or was knowingly concerned in the contravention.
In this case, the FCCA held that some of key concepts in determining that the directors were ‘involved’ and, therefore, liable as accessories for the contraventions by the Companies included:
Directors may face significant penalties
If a director is found to be ‘involved’ in contraventions of the FW Act, they will be an accessory in those contraventions and can be personally liable for any penalties in addition to the amount of the unpaid entitlements (particularly if the company is unable to pay those amounts). In prior cases, directors have been ordered to pay in excess of $50,000 in penalties as a result of being involved in a contravention of the FW Act.
FWO continues to crackdown on directors
This case is also demonstrative of the FWO’s persistent crackdown on employers underpaying their employees and its ongoing commitment to litigate such matters as necessary. The FWO has publicly announced its intention to target directors and other involved parties in cases where employees are underpaid their entitlements. In 90% of the cases prosecuted by the FWO in 2016, at least one individual was also prosecuted as an accessory. The FWO’s 2017-18 annual report indicates that the FWO has continued to pursue its objective of targeting individuals involved in underpayment claims.
Directors could soon face jail time
In light of a report recently published by the Migrant Workers’ Taskforce in March of this year, directors of companies could soon face jail time for underpaying their employees.
In principle, the Government has accepted all 22 recommendations outlined in the report in relation to findings of deliberate and systematic underpayment of migrant workers, including jail time for employers involved in the underpayments.
If implemented, the recommendations will have significant implications for employers and their directors. Importantly, criminal acts of directors cannot be insured against, and directors will not be able to demand indemnification from their companies if they are involved in underpayments that are deemed to be criminal offenses.
KPMG Law’s Workplace and Employment team can advise you on legal compliance, risk management and strategic resolution relating to any underpayments and other obligations arising from applicable legislation, modern awards and enterprise agreements.
This article was first published to KPMG Tax Now.
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