Director Banning Orders for wage underpayments floated

Christian Porter, the Attorney-General and Minister for Industrial Relations, has publicly said that the Australian government is considering extending banning orders to directors of companies who have been engaged in underpaying their employees. The comments have been made in brief interviews with media outlets and the Attorney-General has indicated that a discussion paper setting out some specific options will be released by the Government in the coming weeks.

The proposal comes as Woolworths recently announced that it underpaid staff by up to $300 million and follows other high-profile admissions of wage underpayment made by restaurateurs, the retail chain 7-Eleven and national broadcaster, the ABC.

These systemic underpayments are concerning because, aside from the financial harm done to employees, they further undermine community confidence in corporate Australia, at a time when businesses’ reputation is already damaged following the Financial Services Royal Commission and other high-profile instances of corporate misconduct.

The statements from Government and regulators like the Fair Work Ombudsman demonstrate that boards must be alive to the risks from systemic underpayment of staff.

Beyond the financial and reputational risks, there is the likelihood of breakdown in trust and confidence with staff with implications for workforce morale, productivity and performance. It is difficult to motivate a group of employees who feel that either they or their colleagues have been underpaid, either deliberately or through neglect.

Directors are also potentially exposed to personal liability for underpayment of wages and breaches of industrial awards by virtue of the accessorial liability provisions in s.550 of the Fair Work Act 2018. A number of Federal Court decisions have considered this issue and there are differing views as to the extent of knowledge of each individual breach that is required to hold a director personally liable and what occurs where there are systemic issues. Cases have generally examined the most egregious cases of wage underpayment rather than more complex instances.

Directors need to be alive to these issues within their organisation, particularly those with a large workforce that have a complicated industrial instrument governing wages and conditions. Where a potential risk exists, directors should put questions to management and, if necessary, seek some independent third-party assurance of compliance. If further high-profile instances of wage under-payment are revealed, the calls for tougher penalties against companies and directors will only grow louder.

The AICD will look closely at the Government’s proposals once released and seek to ensure a balanced policy outcome. We will resist efforts to impose additional personal liability on directors unless there are strong grounds for doing so, recognising the board’s role is one distinct from management, and that liability should be reserved for deliberate circumvention of the law.