A recent penalty decision of the Federal Circuit and Family Court of Australia (the “Court”) serves as a reminder that payroll compliance is not simply an administrative function. After finding systemic and long-running underpayments that continued despite repeated warnings, the Court imposed penalties of almost $500,000 on the employer, in addition to earlier compensation orders of approximately $368,000. Nine committee members were also personally penalised for their involvement in the contraventions with penalties imposed of up to $15,000. Several of those individuals were no longer serving on the committee at the time of the penalty hearing, yet still faced personal liability for their role in the breaches.

Background

A long serving manager of a recreational club was underpaid for almost six years, until her employment ended in 2021. The Court had already found that the club failed to pay minimum wages, weekend rates, superannuation and annual leave, and that it took adverse action against the manager by pressuring her to sign a new contract after she complained about being underpaid.

The Court found that the issue was raised repeatedly, including by the club’s accountant, a senior office holder and the employee. The committee also received annual auditor’s reports, which would have made the position obvious, and a committee member, who received a written warning that the club was legally exposed, asked for the issue to be kept confidential.

When the club finally took steps to address the issue in late 2020, the committee minutes described the obligation to pay the employee as having only “recently” come to light, which the Court found to be a mischaracterisation. The manager was then given a contract on a “take it or leave it” basis.

Known underpayments can escalate into serious contraventions

A key feature of the decision was the Court’s finding that the underpayments were not isolated mistakes. Rather, they were systemic, long running and continued despite repeated warnings. The Court therefore treated several of the breaches as “serious contraventions”, exposing the employer to substantially higher penalties.

The Court found that the committee members had “knowledge of the essential matters constituting the contraventions. It was their obligation to ensure that the affairs of the Club were managed according to law. Each of them failed to do so. They could not shield themselves from liability for the Club’s contraventions relating to its underpayment of [the employee’s] wages by turning a blind eye to what was an obvious underpayment.”

The Court accepted that the committee members were volunteers who received no financial benefit and that the club was small, with no human resources staff. However, warnings had been given over many years, including by the club’s treasurer and external accountant, and the issue was not adequately addressed.

Key takeaways

The case shows a growing trend in governance to proactively investigate matters of concern as they arise. Sexual harassment legislation carries a positive duty to prevent harassment in the workplace. Work, health and safety legislation requires employers to identify risks before any harm occurs. Wage compliance is moving in the same direction. The Court found that the committee knew the essential facts, were obliged to ensure the club operated lawfully and could not turn a blind eye to an obvious underpayment.

Employers, boards, committees, executives and HR teams should consider what good governance looks like in their own organisations. Warning signs should be investigated, not ignored.

While the conduct in this case predated the new wage theft provisions, employers should be aware that wage theft, meaning the intentional underpayment of employees, is now a criminal offence. You can read about those laws, which came into effect in 2025 here.

You can also read about what to do if you discover an underpayment here.