A recent Federal Court decision suggests that directors may have a new but risky basis for avoiding personal liability under the Fair Work Act 2009 (Cth)

In Potter v Fair Work Ombudsman [2014] FCA 187 (7 March 2014), a company director, Mrs Potter, was partially successful in appealing against a finding that she was an accessory in the company’s failure to pay correct wages to staff.

The case concerned a call centre company in NSW that failed to pay correct wages to its employees under the Clericaland Administrative Employees (State) Award. Mrs Potter was aware that the company’s employees were likely to be covered by an award or enterprise agreement, but wrongly decided that no award applied. Instead, Mrs Potter caused the company to pay its employees under a defective Australian Workplace Agreement.

The Fair Work Ombudsman successfully obtained penalties against Mrs Potter in the Federal Circuit Court on the basis that Mrs Potter:

  • was responsible for deciding each employee’s wages;
  • was “knowingly concerned” in the company’s underpayments even if she did not know that the employees were being paid less than what was required; and
  • therefore personally liable as an accessory to the company’s contraventions of the Fair Work Act 2009 (Cth).

On appeal, the Federal Court noted that to be “knowingly concerned” in a company’s contravention of the Act the alleged “accessory” must have actual knowledge of the essential facts that constitute the contravention.

In this case, the Court held that Mrs Potter could only be personally liable for the company’s underpayments if she had known that the correct award applied to the employees. As that was not the case throughout the employment, Mrs Potter’s appeal against her contraventions was partially successful. However, Mrs Potter was still held liable for underpayments from 9 July 2009 onwards, after she received professional advice that the award did indeed apply.

This decision departs from previous authorities where company directors with control over staff wages were held personally liable for underpayments regardless of whether they knew:

  • that a particular award or enterprise agreement applied to staff; or
  • that particular staff were being underpaid.

Despite this decision, directors should not attempt to rely on ignorance to defeat claims for breaches of workplace laws because:

  • ignorance will not avoid liability for the company itself;
  • this decision may be appealed or not followed by the Federal Court in future decisions; and
  • a director seeking to rely on a defence of ignorance may be held to be wilfully or recklessly ignorant of staff entitlements (and hence still liable).

As always, companies, directors and management should ensure staff entitlements are correctly applied and seek legal advice when in doubt.