Underpay your staff? It might get personal

Executives of companies may now be held personally liable if they have failed to back-pay employees their workplace entitlements.  In the recent Federal Circuit Court decision of FWO v Step Ahead Security Services Pty Ltd the Court provided its interpretation of section 550 of the Fair Work Act (“FWA”) which allows a Court to make orders against “a person who is involved in a contravention of the FWA” including in relation to underpaid employee entitlements.  As a result of this decision, “accessories” to a company such as directors, managers and possibly external advisors cannot be shielded behind the corporate veil to avoid personal liability for underpaid employees of a business. Moreover, the practice of winding up an employing entity to avoid paying those liabilities may mean that directors or managers will have to pay for them plus penalties.

In the Step Ahead decision, a sole director of a company which employed eight security guards in the Gold Coast and Tweed Coast areas admitted to underpaying his staff but did not make those payments.  Upon an application by the Fair Work Ombudsman the Court held that the sole director should be jointly and severally liable with the company for repaying the employees’ entitlements.  The Court relied on several grounds including that the company had been wound up and therefore could not repay the entitlements itself, the director was responsible for ensuring the company complied with its legal obligations and interestingly that “public policy also requires the prevention of people retaining a benefit resulting from the misconduct”.

This decision should act as a warning to directors and others connected to businesses, such as managers, that using corporate structures to escape responsibilities for paying employees their legal entitlements will not be accepted.

Hamish Esplin

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