Understanding contraventions

There is an increasing trend to name individuals in proceedings for contraventions of the Fair Work Act. Erin Kidd outlines how company directors, officers, senior managers and even influential third parties can be personally liable for contraventions by an employer.

It is well known that proceedings can be brought against employers who contravene the civil remedy provisions of the Fair Work Act 2009 (Cth) (FW Act). However, under section 550 of the FW Act, a person such as a company director, officer, senior manager or human resources employee can be taken to have committed the same contravention as the employing entity if they were “involved in” the contravention.

In a paper given at the ALERA 2014 national conference on 29 August 2014, the Fair Work Ombudsman (FWO) admitted that it is using accessorial liability “more and more, so that we can hold individuals involved in contraventions to account”. The paper stated that in the financial year ending 30 June 2014, penalties totalling $753,809 were imposed against accessories in 30 of 38 penalty decisions handed down by the courts in matters prosecuted by the FWO.

The law

Section 550 of the FW Act reads as follows:

550 Involvement in a contravention treated in same way as actual contravention

1. A person who is involved in a contravention of a civil remedy provision is taken to have contravened that provision.


2. A person is involved in a contravention of a civil remedy provision if, and only if, the person:
   1. Has aided, abetted, counselled or procured the contravention.
   2. Has induced the contravention, whether by threats or promises or otherwise.
   3. Has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention.
   4. Has conspired with others to effect the contravention.

Like its counterparts in other areas of law, such as the work health and safety, trade practices and corporations legislation, a number of elements need to be satisfied for an individual to have accessorial liability under section 550 of the FW Act. In summary, the individual must:

1. Have knowledge of the essential facts constituting the contravention.


2. Be knowingly concerned in the contravention.


3. Unless it is a case of wilful blindness, be an intentional participant in the contravention based on actual and constructive knowledge of the essential facts constituting the contravention.

Importantly, the individual does not need to know that the matters in question constituted a contravention of the FW Act. In other words, state of mind is not required to establish guilt.

Where an individual is found to have contravened a civil remedy provision of the FW Act, they may be liable for a monetary penalty. The penalty that can be imposed is one-fifth of the maximum penalty that can be imposed against a body corporate for the same contravention. Opposite are examples of accessorial liability under the provision.

Case 1: Contravention by director of employing entity

The director and company secretary of a call centre business was penalised $26,500 for her involvement in breaches of the Workplace Relations Act 1996 (Cth) and FW Act in relation to the underpayment of 33 employees totalling $193,419.36.

In Fair Work Ombudsman v Quincolli Pty Ltd (2011) FMCA 139 it was found that Mrs Potter, the director and secretary of Quincolli, was involved in the company’s failure to pay staff their correct wages and entitlements as per the Clerical and Administrative Employees (State) Award (Clerical NAPSA), which was the clerical award applying at the relevant time. Quincolli argued that the underpayments were the result of an incorrect belief that Australian Workplace Agreements (AWAs) applied to the employees, which ousted the application of the Clerical NAPSA. However, this was not the case, as AWAs were never properly lodged. Quincolli also contravened the FW Act for failing to comply with a notice to produce issued by the Fair Work Ombudsman. The judge found that Mrs Potter was involved in both the underpayment of the employees and the failure to comply with the notice to produce. This was because she had the day-to-day control of the employees and was responsible for determining and setting the wage rates that applied to the employees. On the basis of evidence that Mrs Potter was made aware that the Clerical NAPSA applied to the employees, it was found that she was accessorily liable for the underpayment contraventions from the date that she was informed the Clerical NAPSA applied.

On the basis that Mrs Potter made “deliberate and conscious decisions as to the payment of the employees that would benefit the business” and was “determined and tenacious in resisting the investigation, when she realised it posed a threat to the arrangements she had put in place to minimise the labour costs of the business”, she was penalised $25,600. Quincolli was penalised $81,000.

Case 2: Contravention by HR personnel

The case of Cerin v ACI Operations Pty Ltd & Ors (2015) FCCA 1654 and (2015) FCCA 2762 concerned a failure of ACI Operations to provide Mr Cerin with five weeks’ notice of the termination of his employment as required under the FW Act – it only provided him with four weeks and five days’ notice on the basis that this period satisfied its obligations under the relevant workers’ compensation legislation. Given her involvement in the contravention, ACI Operations’ employment development manager was also found to have contravened the FW Act in accordance with section 550.

Although the employee development manager’s involvement was considered incidental and inadvertent, she was found to be “involved in” the contravention because she was aware of the provisions of the FW Act and that they applied to ACI Operations’ employees and she had determined the period of notice to be given to Mr Cerin.

While a mid-range penalty of $20,400 was imposed on ACI Operations, a penalty at the low end of the range was imposed on the employee development manager. That was 10 per cent of the maximum penalty, being $1,020.

Case 3: Contravention by influential third parties

In Fair Work Ombudsman v Al Hilfi ([2015] FCA 313) two individuals, one being the director, company secretary and sole beneficial owner of two companies (Starlink Companies) and the other being the Starlink Companies’ general manager, were found liable for Mr Al Hilfi’s contraventions of the FW Act in respect of underpaying his employees and failing to accord with his obligations regarding payslips and employee records. The Starlink Companies entered into an agreement with Mr Al Hilfi for the provision of trolley collection services in Coles Supermarket car parks. The court found that Mr Al Hilfi was not a sophisticated businessman and the two individuals had the capacity to control, direct or influence (or all three) the conduct of Mr Al Hilfi in relation to the wages and conditions it paid the trolley collectors.

By virtue of carrying out their business, the two individuals had knowledge about the award coverage of employees performing trolley-collecting duties. But despite this knowledge, the two individuals failed to take any action to ensure that Mr Al Hilfi complied with obligations under the relevant award and the FW Act. It was, therefore, found that the two individuals brought about, encouraged or facilitated (or all of these), Mr Al Hilfi’s conduct.

It is interesting to note that the Fair Work Ombudsman also initiated proceedings against Coles Supermarkets pursuant to section 550 of the FW Act, alleging it was liable as an accessory to the same breaches. Coles denied the liability and asserted that it contractually required Starlink to ensure that Mr Al Hilfi complied with his legal obligations as an employer under workplace laws. Ultimately, the proceedings against Coles did not proceed to trial as a consequence of Coles providing the FWO with an enforceable undertaking to rectify the underpayments, establish a “guarantee” fund for any future underpayments and audit its subcontractors.

Lessons

• Directors, officers and other members of management need to ensure that they are aware of the obligations imposed by the FW Act and take appropriate steps to ensure that these obligations are met by the employer. This is particularly the case in respect of human resources personnel and other managers who are commonly involved in determining wage rates and terms and conditions of employment.
• Individuals or companies that are in a position to influence an employer in respect of its obligations under the FW Act (such as through commercial terms imposed on the employer pursuant to a subcontract) can also be liable for that employer’s contraventions.

This author wishes to acknowledge McCabes Lawyers' Kate Hollings and principal Maurice Baroni, for assisting with this article.