In Fair Work Ombudsman v Konsulteq Pty Ltd  FCCA 182, Judge Riethmuller ordered two companies and their sole director to pay $200,000 in penalties and compensation for the consistent failure of the companies to comply with the Fair Work Act 2009, including engaging in sham contracting and adverse action.
Konsulteq Pty Ltd and Konsulteq Upskilling and Training Services Pty Ltd operated a software development business. The companies were controlled on a day to day basis by Mr Gaur, who was their sole director and primary shareholder. Judge Riethmuller found that the two companies were simply the ‘alter egos’ of Mr Gaur.
The companies contravened the Fair Work Act 2009 in a number of ways including underpaying their employees pursuant to sham contracting arrangements. They had also failed to keep adequate employment records, did not issue their employees with pay slips and consistently failed to pay the superannuation entitlements of their employees. It was subsequently held that the director had knowingly failed to take any corrective action to remedy the contraventions.
The Corporate Veil
The director, Mr Gaur sought to deregister the companies in an attempt to avoid having to pay the employees their outstanding entitlements. Judge Riethmuller found that the decision to attempt to deregister the companies evidenced the fact that Mr Gaur had simply been using the companies as a ‘shield’ for his own misconduct. Judge Riethmuller found that Mr Gaur was involved in each of the contraventions of both companies and, pursuant to section 550 of the Fair Work Act 2009, was thereby taken to have contravened the provisions himself. Section 550(2) provides that:
“(2) a person is involved in a contravention of a civil remedy provision if, and only if, the person:
(a) has aided, abetted, counselled or procured the contravention; or
(b) has induced the contravention, whether by threats or promises or otherwise; or
(c) has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
(d) has conspired with others to effect the contravention.”
Cash Flow Issues
Mr Gaur attempted to rely on the limited cash flow of the companies as an excuse for the underpayment. However, Judge Riethmuller rejected this submission, explaining that businesses cannot use cash flow issues as an excuse for failing to pay employees their entitlements.
Judge Riethmuller imposed substantial penalties on the two companies as both a specific and general deterrent measure. He awarded a penalty of $40,000 against Konsulteq Pty Ltd and $120,000 against Konselteq Upskilling and Training Services Pty Ltd. Judge Riethmuller also awarded a penalty of $35,000 against Mr Gaur personally.
Judge Riethmuller stated that “[t]here is a clear need for specific deterrence [in] this case, given the conduct of the Respondents. There is also a need to consider general deterrence particularly with respect to [Mr Gaur] attempting to use the corporate veil to avoid responsibility for work place obligations where they have been the operating mind of the companies when conducting the breach.”
Lessons for Employers
The conduct of Mr Gaur was particularly serious, and most probably beyond the contemplation of the vast majority of employers. That said, the case constitutes an important reminder of the following things:
- Directors should be mindful that a failure to comply with the Fair Work Act 2009 could expose them to personal liability. This liability can be quite substantial.
- Employers cannot rely on a lack of cash flow as an excuse for failing to pay their employees correctly. In this regard, it is important for all small businesses to engage in serious and realistic business planning to ensure that they are not put in a situation in which temporary cash flow issues prevent them from discharging their obligations under the Fair Work Act 2009.
Lessons for Employees
The case should provide some solace for employees. As Judge Riehtmuller explained, a failure on the part of the companies to rectify the underpayment would allow the employees to recover their wages from the amount paid to the Commonwealth as a penalty.
How can JFM Law help?
If you are a director of a company who is concerned about your personal exposure to a claim by an employee for breach of the Fair Work Act 2009 or an employee who is concerned that your employer may wind up the company that employs you or put the company in to administration in an attempt to avoid paying out on a claim for breach of the Fair Work Act 2009, please email me at email@example.com or give me a call on +61 9331 0266 for a free of charge phone conference.
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