Ignorance may not be bliss for company directors who seek to hide behind the corporate veil. A recent decision in the Federal Circuit Court has notably held that a company director can be found personally liable for breaches committed by a company by virtue of section 550 of the Fair Work Act 2009 (Cth) (FWA).

In Fair Work Ombudsman v Step Ahead Security Services Pty Ltd & Anor [2016] FCCA 1482, Step Ahead was held to have underpaid eight causal employees almost $23,000 by paying flat hourly rates and disregarding nine provisions of the Security Services Industry Award 2010 (Award). The breaches included a failure to pay the minimum rate of pay, casual loading, penalty rates, over time and shift allowances.

Notably, the court applied section 550 of the FWA to hold that the company’s director was also personally liable through his involvement in the company’s contraventions. Section 550 provides that a person involved in the contravention of a provision in a modern award will be taken to have contravened the provision in a personal capacity.

In one of the few cases to consider this section, the court found:

  • the director was the “controlling mind” of the company and aware of the Award requirements;
  • the contravention was deliberate and involved disregard for minimum standards in the payment of wages and entitlements;
  • neither the director nor Step Ahead had taken any steps to repay the underpayments to the employees, or showed any contrition; and
  • there had been a financial impact on the affected employees.

Taking these factors into account, and considering the need for general deterrence, the court imposed record penalties on Step Ahead and its director totalling over $308,000. Step Ahead was ordered to pay just over $257,000 in penalties for its contraventions of the Award and the FWA and the director personally paid $51,408 in penalties for his involvement. These penalties were inclusive of a 20% reduction for the admission of breaches by both Step Ahead and the director.

In addition, Step Ahead and the director were jointly and severally liable to pay the underpayment amount of $22,779.72. To put it in perspective, the company’s failure to pay a mere $201.88 of overtime work attracted a hefty fine of $34,272.

The court also imposed an injunction restraining the director from underpaying security industry workers in the future. It will be interesting to see if he behaves himself considering his history with the Fair Work Ombudsman. The director had previously been the sole director of two security companies placed into liquidation, one of which had outstanding remuneration complaints.

Lesson for employers

  • The court also imposed an injunction restraining the director from underpaying security industry workers in the future. It will be interesting to see if he behaves himself considering his history with the Fair Work Ombudsman. The director had previously been the sole director of two security companies placed into liquidation, one of which had outstanding remuneration complaints.
  • Taking these factors into account, and considering the need for general deterrence, the court imposed record penalties on Step Ahead and its director totalling over $308,000. Step Ahead was ordered to pay just over $257,000 in penalties for its contraventions of the Award and the FWA and the director personally paid $51,408 in penalties for his involvement. These penalties were inclusive of a 20% reduction for the admission of breaches by both Step Ahead and the director.
  • Company directors and executives should be aware that they can be found personally liable for breaches of a company by virtue of section 550 of the FWA. Sole directors are at particular risk of exposure as it would be hard to argue they were not involved in the company’s contravention.