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Accessorial liability: personal implications for business owners, managers and advisors – Part 1

10 Oct 2019

Topics

  • Business Law
  • Employment Law

Under Australian law, where an employer breaches the Fair Work Act, National Employment Standards or the Modern Slavery Act, a director or manager of that business, and professional advisors to the business, can be held personally liable as an ‘accessory’.

In Part 1 of this series of articles, Emily Shoemark talks about accessorial liability and how it has held advisors accountable.

The Fair Work Act

Section 550(2) of the Fair Work Act provides that a company or a person will be ‘involved’ in a contravention if it does any of the following:

  • aids, abets, counsels or procures the contravention
  • induces the contravention whether by promises or threats
  • is in anyway, by act or omission, directly or indirectly knowingly concerned in, or party to the contravention
  • conspires with others to affect the contravention.

It’s important to note that a person or company can include: a company director, a human resources or other manager, a payroll officer, an accountant, and a business involved in the company’s supply chain.

The accessorial liability provisions allow the court to hold anyone involved in a contravention accountable, even if the business has gone into liquidation. This means that a person who has contravened the Act by making decisions as a director of a company can’t escape liability by winding up the company, as they can be personally liable.

Who is at risk of becoming an accessory?

You may be at risk of becoming an accessory if you:

  • assist with any aspect of HR and/or payroll processing
  • provide advice about pay rates or employment conditions
  • assist with employment arrangements.

This can include company directors and managers if they assisted in the relevant decision-making or knew what was happening and took no steps to prevent or stop the contravention.

Under amendments that were made to the Fair Work Act in 2017, franchisors and holding companies can also be liable in certain circumstances.

What does accessorial liability mean?

Accessorial liability occurs when a person or company in an advisory position – such as an accountant – is involved in a contravention of a workplace law.

When this happens, the person or business providing the advice is treated in the same way as the employer responsible for the contravention. They can be ordered by a court to pay employees’ unpaid wages and entitlements and may also incur penalties for their involvement in the contravention.

Similarly, if they are found to have been involved in a contravention, they are taken to have contravened the Fair Work Act.

As the Fair Work Ombudsman (Natalie James), has said, the Ombudsman is concerned that, while small businesses rely heavily on trusted advisers, those businesses often receive bad or incorrect advice from those trusted advisers. Even worse, sometimes the trusted advisers deliberately assist with the contravention of Australian workplace laws and the Ombudsman believes that trusted advisers should be held to account.

Trusted advisers – EZY Accounting 123 Pty Ltd v Fair Work Ombudsman [2018] FCAFC 134

In April 2017, the Federal Circuit Court handed down a decision declaring that a restaurant had underpaid its workers. It also declared that the restaurant’s accountant, EZY Accounting 123 Pty Ltd (EZY), was an accessory to the restaurant’s contraventions to the award.

Ezy was ordered to pay a penalty of $53,800. The restaurant admitted underpaying its employees, but the Fair Work Ombudsman had also alleged that EZY, which had provided payroll services to the restaurant, was involved in the underpayments as an accessory. EZY did not admit its part in the underpayments and defended the case.

In this 2018 decision, Ezy appealed the original decision, claiming that it was not an accessory because it didn’t have the requisite knowledge of the contraventions to make it liable, submitting it was just following its client’s instructions. Some of the arguments Ezy made in trying to overturn the original decision included:

  • ‘We just process payroll and do data entry.’
  • ‘We were not engaged to provide any employment-related advice.’
  • ‘It was not my business to know whether or not the rates complied with any award. That was a matter for the employer.’

The Federal Court disagreed, finding that EZY did have the relevant knowledge because EZY, through its director:

  • knew that the employees were covered by the modern award that provided for a base rate of pay for ordinary hours of work and for penalty rates and allowances
  • knew that the restaurant was underpaying its employees because it knew the rates in the payroll system – that EZY ran for the restaurant – were not sufficient to meet the requirements of the award and, therefore, knew the employees were being underpaid.

As well as EZY’s knowledge of the contravention, there was a practical connection between EZY and the conduct of the restaurant because EZY had facilitated the underpayments by processing the restaurant’s payroll.

The penalty for EZY Accounting 123 was $51,330.

This case reinforces that the Fair Work Ombudsman will take a broad view of who is responsible for ensuring employees receive their minimum entitlements.

Those who advise employers, including HR professionals, accountants and legal advisors, should keep their potential personal exposure in mind and act accordingly when advising about minimum legal obligations.

How can we help?

Our Business Law and Employment Law teams can help you if you’d like to know more about your responsibilities as an employer or adviser. For advice, please contact us on 02 6285 8000 or by email.