Knowledge

02 April 2016

Directors and HR Managers Liable for Employer Misconduct

In a number of recent cases, the Federal Court of Australia has lifted the corporate veil and found employees and directors personally liable for breaches of industrial relations laws and standards.  This is the result of section 550 of the Fair Work Act 2009 (Cth) (“the Act“), which imposes personal liability on persons who are involved in a contravention of certain provisions of the Act.

The Corporate Veil 

As soon as a company is formed, the law recognises it to be its own entity, separate from the individuals involved in it and liable for its own actions.  This legal principle is referred to as the corporate veil.

Disgruntled employees generally target their employer for breaches of industrial relations laws and standards.  At common law, it is usually only the employer who is liable for such breaches.

However, it is vital for directors and managers, particularly those involved in industrial relations, to understand that this is not always the case.  This has been highlighted in several recent Federal Court cases.

Cerin v ACI Operations Pty Ltd [2015] FCCA 2762

Mr Cerin had been injured at work and as a result, his employment could not continue.  His corporate employer gave 28 days payment in lieu of notice, instead of the five weeks required under the National Employment Standards.

The Court found that the Human Resources Manager, despite not being heavily involved in the company’s breach of the National Employment Standards, was personally liable under section 550 of the Act.  As a result, the Human Resources Manager was liable to pay a civil penalty of $1,020.00 (in addition to the company being liable to pay $20,400.00).

Fair Work Ombudsman v Oz Staff Career Services Pty Ltd [2016] FCCA 105

The employer, Oz Staff Career Services Pty Ltd, made unauthorised deductions from certain employees’ wages.  The wage records had also been altered, effectively concealing the deductions.

The Human Resources Manager argued that he was not aware of the unauthorised deductions.  The Court did not accept this, and stated that it was highly unlikely a person who was running the human resources activities of the company would not be aware of the unauthorised deductions.  As a result, the Human Resources Manager was found personally liable for the conduct because of section 550 of the Act, as well as the employer itself.

Fair Work Ombudsman v Centennial Financial Services Pty Ltd [2010] FMCA 863

The Fair Work Ombudsman took action against the employer, Centennial Financial Services Pty Ltd, as well as the company’s sole director and the company’s Human Resources Manager.

The company had failed to pay a number of employees their minimum employment entitlements over a period of 13 months, breaching several provisions of the now-repealed Workplace Relations Act 1996 (Cth) (“WR Act“).  The Human Resources Manager argued that his involvement in the offending conduct was minimal, as he had merely followed instructions from the sole director of the company.

This argument was not accepted by the Court, which held that the Human Resources Officer had knowledge of, and was involved in, the company’s breaches of the WR Act.  As a result, the Human Resources Manager was found personally liable and was ordered to pay a civil penalty of $3,750.00.

Conclusion

The above cases demonstrate that, despite the company being a separate entity, its directors and employees can still be found personally liable, if they are involved in the company’s breach of industrial relations laws.

It is now more important than ever for employees involved in industrial relations to be aware of their legal obligations.  To avoid the risk of being found personally liable, it is a good idea for individuals to seek legal advice if they are unsure or concerned about their potential liability.

For more information about this issue and all employment and industrial relations matters, please contact our partner, Elaine Jesurasingham on 07 4036 9700.

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