The Fair Work Act 2009 (Cth) (the Act) is a principal piece of employment legislation in Australia. Among other things, it sets out minimum terms and conditions of employment (the "National Employment Standards"), prescribes sources of industrial regulation in the form of industrial instruments (such as modern awards and enterprise agreements), and protects employee rights (such as by providing employees with an avenue to pursue general protection and unfair dismissal claims).
If the Act is contravened, a range of negative consequences can and often do flow, including the imposition of penalties. Importantly, the Act extends liability for a contravention to persons other than the primary perpetrator where such persons are “involved” in the contravention. This is known as “accessorial liability.”
A breach of the Act's accessorial liability provisions can result in a penalty of up to AU$54,000 per breach for an organization and up to AU$10,800 per breach for an individual.
What is accessorial liability ?
A person is “involved” in a contravention of the Act if the person:
- Has aided, abetted, counselled or procured the contravention
- Has induced the contravention, whether by threats or promises or otherwise
- Has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention
- Has conspired with others to effect the contravention
Over the years, the courts have found that a person will be considered ‘involved’ based on the following:
- If they have knowledge of the essential facts constituting the contravention
- If they have been knowingly concerned in the contravention
- If they were an intentional participant in the contravention based on their actual or imputed knowledge of the essential facts constituting the contravention (even if they did not know that the matters in question constituted a "contravention").
Some recent examples
An HR manager was recently fined for her involvement as an accessory to a company’s breaches of the Act's notice-of-termination provisions. In the same week, two managers and a director were found to be accessories to their company’s underpayment of staff.
These two decisions highlight the courts’ preparedness to hold individuals liable for their involvement in breaches relating to minimum employment entitlements. Companies and staff alike need to understand the risks to the organization and individuals being held accountable for breaches of the Act, and to strictly adhere to the provisions of the Act and/or the terms of any applicable industrial instrument.
In the first decision, the HR manager had given an employee 28 days’ notice of termination after being notified by the workers’ compensation authority that the company was no longer required to provide suitable alternative duties to the employee. The HR manager reviewed the employee’s contract and provided four weeks’ notice as per its terms. Unfortunately, due to the employee’s age and length of service, the notice period was two days short of the employee’s statutory entitlement to notice under the Act.
The company was fined more than AU$20,000 for breaching the Act's notice-of- termination provisions, and the HR manager was personally fined AU$1,020 for her role in effecting the notice and termination. In setting these penalties, the court stated that the penalties should serve as a warning to employers of the need to comply with the legislation to the letter. The decision also highlights the expectations that courts have of individuals and the importance of providing HR managers with adequate training in understanding and being able to identify key issues in employee relations law.
The second decision involved two managers and a director whofailed to pay employees their correct entitlements under the applicable modern award.— In fact, the employees received less than 60 precent of their entitlements. The director, who was heavily involved in the financial aspects of the business, argued that when he purchased the business from its previous owners, he was not given sufficient information about the Australian employment law landscape. He claimed, as did the two managers, that he was simply unaware that either the modern award or Act set the relevant minimum wages and conferred other entitlements.
The court was not persuaded by the defendants' professed naivety, noting that all three had masters degrees (two in business), one had been a union member, and none of the three were particularly credible.
Finding that ignorance was not bliss but amounted to wilful blindness, the court found all three to be accessories to the company’s breaches. For their roles in the contraventions, the managers were each fined AU$4,504.50 and the director was fined AU$3,861.
Widening the net
As the above cases illustrate, the accessorial liability provisions of the Act have historically been used against individuals, such as directors and managers. In recent times, however, the Fair Work Ombudsman (a regulator with responsibility for enforcing compliance with workplace laws) has shown a willingness to prosecute organizations involved in a “contract chain”—for example, where a company subcontracts work to a third-party provider.
Under this broader view of the accessorial liability provisions, an organization can be found liable for contraventions of the Act by its contractors, or its subcontractors, where it has:
- Engaged in sham contracting (the Act prohibits a person or organization from representing to a worker it engages that the relationship between them is one of principal and independent contractor when it is, in reality, one of employer and employee)
- Denied or underpaid entitlements to their employees, including wages, leave and other benefits due under industrial instruments, such as modern awards and enterprise agreements.
Lessons for employers and individuals
There are a number of steps that companies can and should take to educate their management and HR teams regarding their obligations under the Act, applicable industrial instruments (such as modern awards and enterprise agreements) and general protections (including the risks to them personally).
Given the Fair Work Ombudsman's recent prosecution of noncompliant contractor arrangements in Australia, companies should be taking steps to audit current contractors to identify any areas of risk. Where a risk is identified, companies should manage that risk by terminating, renegotiating or in-sourcing work where possible. To reduce risks arising in future contracts, companies should require, as part of their tendering process. that contractors demonstrate compliance with relevant employment legislation, and should also put appropriate audit systems in place to ensure continued compliance. Companies should educate their employees responsible for the management of contracts so that they can identify and properly address risks of accessory liability before those risks become a reality.
This article was authored by Stephanie Nicole, Partner, Gadens LLP.