The Fair Work Ombudsman has started making more frequent use of s 550 of the Fair Work Act 2009 (Cth) (‘FW Act’). This has resulted in a number of directors of companies that employ workers being ordered to pay compensation to employees personally.
This article discusses the operation of s 550, and proceeds to consider two recent cases in which it has been used.
Section 550
Section 550 of the FW Act provides that a person who is ‘involved’ in a contravention of the FW Act may also be taken to have contravened the provision themselves. This provision exposes directors, Human Resources managers and executives of companies to personal liability for breaches committed in the course of their management of the company. It removes the corporate veil.
Fair Work Ombudsman v Step Ahead Security Services Pty Ltd [2016] FCCA 1482
Step Ahead Security Services Pty Ltd (‘Step Ahead’) was a security company owned and controlled by a sole director. Step Ahead paid eight of its employees a flat hourly rate that did not reflect or take into account the penalty and overtime rates to which the employees were entitled under the relevant Modern Award. This contravened the FW Act.
Judge Jarrett made an order against the sole director of Step Ahead requiring him personally, and Step Ahead to pay compensation of $308,000 with the director ordered to pay $51,400 and Step Ahead to pay $257,000 to the employees for the contraventions of the FW Act. In so doing, he noted that s 550 allowed the court to make an order for compensation covering the whole of the loss caused by the contravention on the part of the company, not merely that which was directly caused by the particular director’s involvement.
Fair Work Ombudsman v Oz Staff Career Services Pty Ltd [2016] FCCA 105
Oz Staff Career Services Pty Ltd (‘Oz Staff’) was a cleaning company that had gone into liquidation. Oz Staff made a number of deductions from its employees’ wages, including an ‘administration fee’ and a ‘meal deduction’. In so doing, it failed to pay its employees in accordance with the relevant Modern Award, and breached the FW Act. It also failed to comply with its obligations concerning record keeping.
Judge Burchardt made an order against Oz Staff’s Human Resources Manager for his involvement in the breaches. Importantly, Judge Burchardt noted that a Human Resources Manager who has knowledge of the relevant contraventions and who decides to take no action will still have been ‘involved’ in the contravention. In the present case, the Human Resources Manager’s decision to do nothing with knowledge that the deductions had been made from the employees’ wages was sufficient, even though there was no evidence that he knew that the deductions breached a specific provision of the FW Act. Oz Staff’s Human Resources Manager has been penalised $9920 for his part in facilitating some of the unlawful deductions and the false records.
Lessons for Employees
Section 550 can be a powerful weapon for employees. Many breaches can be recovered by way of compensation orders in circumstances in which the company that employs them is insolvent or has gone into liquidation, as Oz Staff did. It goes some way to preventing wrongs being suffered without a remedy, particularly where a director of a company may threaten to put a company in to liquidation to attempt to avoid paying employees money that they are entitled to.
Lessons for directors, executives and Human Resources managers
Directors, executives and Human Resources managers must be mindful that they are all personally exposed to liability for breaches of the FW Act. This liability extends to circumstances in which they refrain from doing anything despite knowing that their company is breaching the FW Act. This is particularly important for sole directors who will be unlikely to argue that they were not ‘involved’ in any contravention of the FW Act as they are the ones who are effectively solely responsible for the running of the company. In short, ignorance is not a defence.
How can JFM Law help?
If you are an employer who has received a complaint or allegation from an employee for a breach of the Fair Work Act (such as unpaid wages or unpaid overtime) or if you are an employee who believes that your employer is breaching the Fair Work Act by not paying you your entitlements, contact JFM Law on (02) 9199 8597 for a no obligation chat. If you would rather get in contact through email, send your question through or by email at wehelp@jfmlaw.com.au.
The information contained in this post is current at the date of editing – 6 June 2024.