Directors of companies who knowingly and deliberately contravene the Fair Work Act 2009 (Cth) may be ordered by the Court or Commission to pay high penalties.

The Federal Circuit Court of Australia has ordered the director of a security company, Owen Ivor Jennings, to personally back-pay employees who were underpaid by Step Ahead Security Services in the decision Fair Work Ombudsman v Step Ahead Security Services Pty Ltd [2016] FCCA 1482.

What is this case about?

Step Ahead is a security company owned and controlled solely by Mr Jennings. Step Ahead contravened the relevant Modern Award by failing to pay employees the rates of remuneration set out in the Award or the loadings and entitlements as set out in the Fair Work Act. Instead, Step Ahead paid employees flat hourly rates, ignoring the penalty rates for work performed on Saturday, Sunday, public holidays or work performed overtime.

Step Ahead also failed to pay the employees the correct minimum wage rate, casual loading, broken shift allowance and failed to comply with minimum shift lengths pursuant to the Modern Award.

In total, Step Ahead underpaid employees a total of $22,779.

Lifting the corporate veil

Section 550(1) of the Fair Work Act provides that a person who is “involved” in a contravention of the Act is taken to have contravened that provision themselves. This section ultimately removes the corporate veil and allows executives of companies to be personally liable for breaches committed in the course of their management of a company. As such, this section allows for the court to make an order for compensation which covers the whole loss caused by the contravention, not just the loss directly caused by the particular director.

What did the court order?

Judge Jarrett found that both Step Ahead Security and Mr Jennings demonstrated "calculated and deliberate conduct" which amounted to a "blatant disregard for Australia's workplace laws and the rights and entitlements of the employees". The underpayment was a significant contravention and Mr Jennings, as the controlling mind of Step Ahead, was well aware of the requirements of the Award. As such, he ordered that Step Ahead Security and Mr Jennings jointly pay the $22,889.72 owing to the employees.

Further, Judge Jarrett determined that significant penalties be imposed due to the need for specific deterrence. Mr Jennings was ordered to pay penalties in the amount of $51,400 and Step Ahead to pay penalties in the amount of $257,000 for contravening the Fair Work Act. An injunction was also imposed which restrained Mr Jennings from underpaying security industry workers in the future.

What does this mean for employers?

This case sets an important precedent that the Court or Commission may hold business owners, directors or company executives directly accountable and responsible for breaches of the Fair Work Act. Employers in these positions must be mindful of their duties under the Fair Work Act.