By Zoe Brodie and Lucy Harper, NRA Legal
With the Corporations Amendment (Strengthening Protections for Employee Entitlements) Act 2018 (Cth) (the Amendment Act) taking effect last month, now is an apt time to reflect on how officers of a company are subject to hefty penalties for failing to pay employee entitlements adequately when they fall due.
The Amendment Act demonstrates stronger policy objectives behind the legislation, pushing for courts to penalise individuals failing to pay employee entitlements, and targeting illegal phoenixing and asset shifting activities of companies.
If you aren’t sure who in your business would be considered an “Officer” under the Corporations Act 2001 (Cth), it is necessary for you to seek advice.
What are the changes being introduced by the Amendment Act?
The recent changes aim to deter “the avoidance of employee entitlements, and protect such entitlements from agreements or transactions that would operate to defeat their recovery” through increasing enforcement options available.
Existing provisions already make it a criminal offence for officers to enter into an agreement or transaction with the intention of preventing or reducing employee entitlements. The implications of the changes, however, result in a lower threshold for criminal offences, lowering the fault element to capture reckless behaviour and to enable the Australian Tax Office Department of Jobs and Small Business and Fair Work Ombudsman to commence proceedings under the provisions.
The Amendment Act introduces higher penalties for breaches of the provisions, including:
- a maximum of 10 years imprisonment;
- a maximum fine of $945,000 per contravention; or
- three times the total value of the benefits that have been obtained through the offence (whatever is greater).
Moreover, individuals found guilty of offences under the Amendment Act may also be liable to pay compensation if loss is suffered by employees as a result of the individuals conduct and a liquidator has been appointed.
Although not liable to imprisonment, body corporates face even heftier fines under the amendments, starting at upwards from $9.45 million in pecuniary penalties per contravention.
When are you ‘knowingly involved’ in contraventions of the Fair Work Act?
Section 550 of the Fair Work Act 2009 (Cth) already makes it a serious contravention for a person to be involved in the deliberate avoidance of employee entitlements. This provision was considered again recently in the litigation between the Fair Work Ombudsman and company directors Kai Silverbrook and Janette Lee. 
In 2016, businesses controlled by Silverbrook and Lee were found liable for underpaying workers and ordered to back pay $1.15 million to 43 underpaid employees. The Judge ordered the regulator to pay $800,000 in costs however, this ruling was later overturned and reconsidered this year, with Judge Driver finding that Silverbrook and Lee were accessorily liable, as they were knowingly involved in the underpayment of employees.
Unfortunately as Judge Driver outlined, Silverbrook and Lees’ case demonstrates how hardworking and honest people may be caught up in adverse events beyond their control. Judge Driver found that:
- because Silverbrook and Lee permitted staff to remain with the hope that they would be able to pay off their entitlements (not having the money to pay), they engaged in conduct which implicates them in the contravention and were accessories even without knowing that the specific conduct in which they were involved in was unlawful;
- in choosing to continue to operate the companies, the Directors were exercising control and connecting themselves with the contravention; and
- it was not necessary that they knew (or didn’t know) the details of each particular instance of contravention or details of the employees’ individual entitlements, as “they chose not to enquire and were willfully blind to those details.”
Lesson for retail leaders
It is important that all decision making persons (including company directors, human resources, payroll officers, line managers, accountants and advisors) are conscious of their obligations to employees and do not conduct business that in anyway could be considered reckless or willfully blind to the obligations the employer has to its employees.
If you have any questions in relation to the changes following the Amendment Act or your obligations to your employees, it is important that you seek advice and assistant to understand your obligations. Please call the NRA’s workplace relations team on 1800 RETAIL (738 245) if you have any questions in this regard.
You may also like to ensure compliance of your business’ rostering practices and managements understanding of the General Retail Industry Award 2010 by sending your management staff to our Rostering for compliance workshop to be held this month. Click here for further details or call through to the NRA’s workplace relations team.