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Hook, line and sinker: Accessorial liability under the Fair Work regime

20 June 2017

Hook, line and sinker: Accessorial liability under the Fair Work regime

Bree Woodhouse, Senior Associate

Regulatory agencies such as the Fair Work Ombudsman (“FWO”) are increasingly interested in seeking to hold third parties accountable for their involvement in contraventions of the Fair Work Act 2009 (Cth) (the “FW Act”). Over the past few years’ prosecutions by the FWO have held various individuals accountable for their involvement in breaches of the FW Act. When reviewing non-compliance, the FWO has looked past the corporate veil to those who orchestrated the breaches, such as Directors.

This article looks at other categories of individuals who may be at risk of being found to be accessories to breaches by an employer, including external and internal advisers.

In the 2015/2016 financial year the FWO sought orders against accessories in 92% of the cases filed in court. This is an increase  from the prior year of only 72%.1 It is now emerging that the FWO is willing to scrutinise both internal and external advisers as to their involvement in breaches of the FW Act, and to hold them accountable for their part in the breaches.

In an October 2016 media release, Natalie James, of the FWO, stated that “We are prepared to use the accessorial liability provisions of the Fair Work Act, where it is in the public interest to hold anyone to account for their involvement in exploiting workers.”2

The degree of involvement

Under the FW Act, involvement in a contravention is treated in the same way as an actual contravention. The most common form of involvement relied on in enforcement proceedings is being “… knowingly concerned in or party to the contravention”. Turning a blind eye to conduct constituting a contravention can amount to “wilful blindness”, and thereby satisfy the knowledge aspect. Borrowing from the criminal law concept, “wilful blindness” can arise “where a person deliberately refrains from making enquiries because he prefers not to have the result, when he wilfully shuts his eyes for fear that he might learn the truth, he may for some purposes be treated as having the knowledge which he deliberately abstained from acquiring”.3

External advisers

External advisers such as accountants, business consultants and the “head office” of franchised companies are being closely watched by the FWO as to the degree of involvement that these third parties have in any non-compliance. If these external advisers have been ‘knowingly concerned in or party to the contravention’ or alternatively have engaged in ‘wilful blindness’ regarding their client’s obligations, the FWO may take action against these third-party businesses.

In a recent case the Federal Circuit Court of Australia found that an accountancy firm was liable as an accessory in its client’s underpayment of staff. In Fair Work Ombudsman v Blue Impression Pty Ltd the Court found that the Victorian accountancy firm Ezy Accounting 123 Pty Ltd (“Ezy”) had “deliberately shut its eyes” to breaches by its client when it provided bookkeeping services to its client Blue Impression.

The alleged underpayment by the employer (Blue Impression), which ran a Japanese fast- food outlet in Melbourne, related to the failure to pay the correct minimum hourly rate and related loadings and allowances in breach of the Fast Food Industry Award 2010. Ezy claimed that it was no more than a service provider and was dependent on the information provided to it by its client. It claimed it had no knowledge of the specific circumstances of any of the employees, their duties, their hours of work, the applicable penalty rates and loadings or the relevant modern award. The bookkeeper at Ezy tasked with providing the payroll and bookkeeping services to Blue Impression gave evidence that her role was limited to purely “data entry” and that she “did not think twice” about the information regarding hourly rates provided to her. When providing evidence to the court the bookkeeper stated: “It was not my business to know whether or not the rates complied with any award. That was a matter for the employer

The Court found that EZY “had at their fingertips all the necessary information that confirmed the failure to meet the Award obligations by the first respondent and nonetheless persisted with the maintenance of its (payroll) system with the inevitable result that the Award breaches occurred.”

Ezy faces penalties of up to $51,000 per breach for seven breaches of the FW Act, with the hearing regarding this penalty to be heard at a later date.

A further example of external third party liability is the case of Fair Work Ombudsman v Yogurberry World Square Pty Ltd. This is the first case in which a master franchisor has been found liable for the contraventions of its franchisees. When reviewing the matter the Court found widespread underpayments and imposed fines of $146,000 on the companies in the Yogurberry group, including the master franchisor and CL Group, the Yogurberry payroll company. The court found that the companies within the group had “knowledge of, and participated in, establishing rates of pay, making payment of wages, determining hours of work and dealing with employment related matters”, and therefore had the requisite knowledge of the contraventions.

Internal advisers

The category of internal advisers extends to those individuals who have knowledge of, and make decisions regarding, the working conditions of employees. By virtue of their positions, managers and others senior personnel have the authority to influence compliance regarding working conditions.

In Fair Work Ombudsman v Crystal Carwash Café Pty Ltd both the director and a manager of the company were found to be involved in the contraventions on the basis that they were responsible for setting the terms and conditions of employment, including wages and working hours, and were involved in breaching the obligation to pay minimum wages for the shifts employees worked. In addition to the back pay due to the employees, the company was fined $70,000 and the director and manager were each fined $10,000 for their role in the breaches.

In the cleaning services industry, in Fair Work Ombudsman v Jooine (Investment) Pty Ltd the Court considered how the company’s director (who was also the company’s internal workplace adviser) was knowingly involved in breaching the FW Act through the use of sham contracting. The matter involved the underpayment of a foreign worker who was engaged by the company in a sham contracting arrangement. Both the company and its director/internal workplace adviser were found liable for the contravention. The Court commented that the director/adviser who had prepared the contracting documents did so “with a deliberate intention to circumvent the legislative framework that has been put in place to protect vulnerable individuals from exploitation.” The Court further foreshadowed the need to deter advisers (internal and external) from assisting businesses evade their obligations under the FW Act: “The deterrent should also extend to the advisors who have facilitated the orchestration of these scams, to prevent their further proliferation of such advice and facilitation.”

A Human Resources Manager was found to have contravened the FW Act in Fair Work Ombudsman v Centennial Financial Services Pty Ltd & Ors. This was based on the HR Manager’s involvement in setting up sham contractor arrangements. The HR Manager was initially involved in employing the employees and preparing their contracts of employment.

At a later point in time the HR Manager terminated the contracts of employment and prepared “Consultant Agreements” to replace the contracts. The HR Manager did this on the instructions of the employer. The “Consultant Agreements” were to perform the same duties in the same positions, with the only substantive difference being that the individuals would be paid commission only rather than wages. The Court found that the knowledge of the terms of the employment agreement and the terms of the consultant agreement was sufficient for the HR Manager to be “knowingly concerned in” the contravention, and cautioned HR professionals with regards to following directions from “higher up” as not being a defence to breaches of the FW Act. In this context, the Court observed that “as Human Resources Manager, he should have been aware of, and at least attempted to give advice on, Centennial’s obligations under the WRA”.

Key takeaways

  1. Both internal and external advisers need to be mindful of the accuracy of information provided to them.
  2. Inquiries should be made to confirm compliance with minimum statutory obligations.
  3. Where the information gives rise to doubts, a strategy of deliberately refraining from inquiring presents significant risks.
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