The recent case of Fair Work Ombudsman v Step Ahead Security Services Pty Limited & Anor  FCCA 1482 highlights the increasing likelihood of Directors being found liable for breaches of the Fair Work Act by their companies and also provides some useful guidance on the circumstances in which this is likely to occur.
Similar to the Consumer Protection provisions of Section 79 of the Corporations Act and Section 75B of the Competition and Consumer Credit Act, Section 550 of the Fair Work Act seeks to protect employees, not only from wrongdoing of employers, but also from wrongdoing by others involved in breaches.
Section 550 of the Fair Work Act provides:
- "A person who is involved in a contravention of a civil remedy provision is taken to have contravened that provision.
- A person is involved in a contravention of a civil remedy provision if, and only if, the person:
- Has aided, abetted, counselled or procured the contravention; or
- Has induced the contravention, whether by threats or promises or otherwise; or
- Has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
- Has conspired with others to affect the contravention.”
In FWO v Step Ahead, Step Ahead provided security guarding services. Mr Jennings was its sole Director and controlling mind. FWO investigated Step Ahead’s accounts over a period of three months and found that instead of paying the Award’s required varying rates of remuneration and loadings, Step Ahead instead paid a flat rate from Monday to Friday (under the minimum Award rate), a flat weekend hours rate and a flat rate for public holidays. Over this examined three month period, the eight employees were underpaid by some $22,779.72.
Section 45 of the Fair Work Act provides that a person must not contravene a term of a modern Award. That Section is a civil penalty provision, hence Section 550 of the Fair Work Act can apply.
As contraventions were found, the Court ordered significant penalties of $257,000 against the company and $51,400 against the Director. The significance of these penalties was largely because:
- The Director was the controlling mind of the company and was fully aware of the Award requirements, having been thoroughly investigated and warned by the FWO in relation to his previous security businesses.
- In light of the above, the contravention was deliberate.
- The Director and company had taken no steps to repay the underpayments to employees and had shown no contrition.
- There had been financial impact on the affected employees including their ability to retain accommodation and meet financial commitments.
However, the Court did apply a 20% discount to the potential penalty as both the company and the Director cooperated in the proceedings, admitted their breaches and agreed to a Statement of Facts.
Significantly the Court noted that Section 545 of the Fair Work Act provided a broad power “to make any order the Court considers appropriate” where the Court is satisfied that a person has contravened a civil remedy provision.
The Federal Circuit Court relied upon this provision, and previous decisions of Scotto v Scala Bros Pty Limited & Anor  FCCA 2374 and Sponza v Coal Face Resources Pty Ltd  FCCA 1140, to also make the Director “involved in” the contravention jointly and severally liable for compensating the employees for losses they suffered because of the contraventions. In this regard, the Court paid heed to the fact as set out at 1 – 4 above, as well as the fact that there was some suggestion that the company may be being wound up or unable to pay, and public policy reasons of a need for deterrents generally and specifically in the security guard industry where underpayment was a significant problem.
Directors, officers and HR staff need to be acutely aware that if there is an underpayment or any other civil remedy breach of the Fair Work Act, any person involved in the contravention (even if they were not aware of the contravention) could, at least theoretically, be liable under Section 550 of the Fair Work Act which does not require intent and, in many respects, does not require knowledge.