The crackdown on the underpayment of employees has continued with two company directors being held personally liable for $1.1 million in underpayments in the recent case of Fair Work Ombudsman v Priority Matters Pty Ltd & Ors (No 4) [2019] FCCA 56.

The Fair Work Ombudsman alleged that during a 10 month period, from February 2013 to December 2013, the five respondent companies and their directors underpaid 43 of their employees including, but not limited to, engineers, scientists and patent design assistants.

The respondent companies each engaged in different activities such as, processing patent applications for inventions, undertaking solar cell research and undertaking medical research.

It was held that the directors were accessories to the corporate Respondent’s contraventions of the Fair Work Act 2009 (Cth) (Act) and as such, could be held personally liable for the contraventions because they were “involved” pursuant to section 550 of the Act.

What does section 550 of the Act say?

Under section 550 of the Act, a person who is involved in the contravention of a civil remedy provision of the Act will be treated in the same way as an actual contravention.

A person is considered to be involved in a contravention if they have:

  • aided, abetted, counselled or procured the contravention;
  • induced the contravention;
  • been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
  • conspired with others to effect the contravention.

How did the two company directors contravene the Act?

Judge Driver held that the directors had intentionally participated in the contraventions of the Act by deliberately turning a blind eye to what was going on within the companies.

Despite the directors having engaged others to undertake the day to day operations of the companies, it was held that as they were the directors of the companies they remained the controlling minds of the companies and as such, were capable of preventing the contraventions of the Act.

Further, it was held that the directors did not need to be aware of every instance where the Act had been contravened. It was enough for the directors to have had suspicions regarding the underpayment of their employees and yet not made enquiries to relieve themselves of those suspicions. As such, the directors’ intention was inferred by their wilful blindness to the contraventions. .

Lessons learnt

In light of the harsh reminder this case provides in relation to potential personal liability for contraventions of the Act, we recommend that directors:

  • exercise proper diligence to ensure that their corporate entities comply with their obligations under the Act to avoid potential corporate and personal liability;
  • Make sure the appropriate systems are in place to guarantee that an employee’s rate of pay is aligned with the increase in pay rates on the 1st of July each year.
  • Are proactive in their duties to their employees. Where suspicious circumstances exist regarding employee remuneration, directors must make enquiries to remove those suspicions and take reasonable steps to ensure the Act is not contravened.