In 2018 we expect to see the FWC continue its recent trend of extending accessorial liability under section 550 of the FW Act to apply to HR managers and third parties.
Section 550 provides that people "involved in" conduct which contravenes the FW Act can be held liable as an accessory to the contravention. An "involved" individual can still be liable even if they do not appreciate that the conduct is unlawful.
Accessorial liability and HR
In late 2017, the Fair Work Ombudsman was again successful in an action against an HR manager for underpayments. This action resulted in the HR manager being fined a penalty of $21,760.
In that case, there were underpayments totalling almost $600,000 to 85 employees over a period of over 16 months. The primary contraventions were committed by a company that owns and operates a restaurant. In addition to the underpayments, the proceedings also related to contraventions involving falsified employment records, created by the HR manager (at the direction of the director) in order to conceal the underpayments. The company's sole shareholder and director, as well as the HR manager and store manager, were respondents in the proceedings as it was alleged that they were accessories to the company's breaches. Ultimately, all four respondents were found liable and the penalties totalled almost $400,000.
The HR manager in this case was employed on a 457 visa. In her role, the HR manager was directed by the company director to calculate the pay of employees, based on the rates provided by the director of the company that were below the award level and to pay the employees in cash. The HR manager knew that the award applied and that the hourly rates were below the award level, and the HR manager advised the director of this fact. Following an employee complaint, the HR manager did not seek to ensure the company was complying with its obligations, but then, at the direction of the company director, created false records to conceal the contraventions. The HR manager admitted to all of these contraventions.
In seeking to limit the penalty imposed, the HR manager argued that:
- she had no role in setting the pay of the employees and was simply following the direction of the company director
- in her culture, it would have been inappropriate for her to defy her boss
- she has no formal human resources qualifications (but did have HR experience generally); and
- she was reliant on her working visa to remain in the country.
These arguments in mitigation were rejected. It was held that, although she was not in the same position of control as the director of the company, there were serious aspects of her involvement, including her knowledge of the contravention, as well as the fact that the HR manager had a significant level of involvement in the contraventions, especially in relation to falsifying the records. This justified the imposition of a significant, as opposed to nominal, penalty of $21,760.
The case is noteworthy as it is an example of the FWO's efforts in pursuing HR managers as a matter of deterrence. The case sends a clear message that HR managers cannot simply follow the instructions of more senior individuals and escape liability when they are aware they are engaging in contraventions. Further, the fact that the contraventions deliberately continued after the existence of a complaint (and arguably, were more serious, due to the creation of false records) were key considerations in this case.
Accessorial liability and third parties
In 2017 the Federal Circuit Court also held that an accounting firm was "involved in" its restaurant client's underpayment of employees because it had the relevant information "at its finger tips" and that it had "deliberately shut its eyes to what was going on".
This case concerned a company who operated a Melbourne Japanese fast food chain. The company and its manager were held to be in contravention of the FW Act by the Federal Circuit Court of Australia, for underpaying employees and failing to provide rest and meal breaks in accordance with the Fast Food Industry Award 2010. In 2014, the FWO identified contraventions of the FW Act by the fast food restaurant and conducted an audit. This prompted the restaurant to engage the accounting firm for assistance. The firm provided services to the restaurant including processing its payroll. The finding that the accounting firm was liable as an accessory to the contraventions was based on the fact that the accountants processed wage payments for the employees.
The Court held, in establishing accessorial liability under section 550 of the FW Act, that it was possible to infer that the accounting firm had actual knowledge of the contraventions from a combination of suspicious circumstances (such as the 2014 audit that revealed the contravention) and a failure to make inquiries and was "wilfully blind" to the contraventions. As referred to above, the Court noted that the firm had "at its fingertips" all the information it needed to confirm the failure of the restaurant to meet its obligations under the award, and yet persisted to process the payments responsible for the underpayment.
In November 2017 the Court imposed a penalty of $53,880 on the accounting firm. We expect to see more third parties named as respondents to FWO proceedings in 2018.
