Director held liable for company’s underpayments – a warning for Directors

The Fair Work Ombudsman has been successful in obtaining an Order that will serve as a warning to Company Directors, where the company is underpaying staff.

This was a security services company (and also with a history of dealings with the FWO), that admitted a number of contraventions relating to the underpayment of 8 employees over a three month period in 2014. The company paid flat rates to the employees, which were insufficient to absorb the other award entitlements that the employees were entitled to.  Consequently, the employees were underpaid $22,799.72 in total.

The key part of this decision however, was Judge Jarrett’s decision to make the Director of the company jointly (and therefore personally) liable for the back payment of the employees. It was noted by Judge Jarrett that the actual employing entity had been wound up, whilst the Director continued to carry on the same type of business, but through a new entity.

In making an order that the Director should be jointly responsible for the back payment of the $22,000 to those affected employees, Judge Jarrett stated:

“In this case [the Director] was responsible for ensuring that [the Employer] complied with its legal obligations under the Fair Work Act. The underpayments arose despite the fact that [the Director] was plainly aware of [the Employer’s] statutory obligations. That must be so given his previous dealings with the Fair Work Ombudsman.

I accept the submission of the Fair Work Ombudsman that there is nothing about [the Director]’ involvement that would lead the Court not to make an order against him for the employee’s loss.”

Judge Jarrett also accepted the FWO’s submissions that an order binding the Director would also act as a deterrent to future decision makers:

“I accept the Fair Work Ombudsman’s submission that the use of the power to award compensation in appropriate cases would go some way to discouraging those that control a corporate employer from allowing the corporation to fail only to continue the business via a new corporation. It would encourage them to take steps to ensure the corporation they control meets its statutory obligations as they arise”.

All Company Directors should take note of the decision and Order, and particularly where there is a history with the Ombudsman, and where the underpaying company no longer operates.

Disclaimer: The information contained this article is general and intended as a guide only. Professional advice should be sought before applying any of the information to particular circumstances. While every reasonable care has been taken in the preparation of this update, Aitken Legal does not accept liability for any errors it may contain. Liability limited by a scheme approved under professional standards legislation.