Thinking | 18 April 2016
Directors beware – significant award of penalties pierces corporate veil
Fair Work Ombudsman v Konsulteq Pty Ltd & Ors  FCCA 1821
A recent decision of the Federal Circuit Court imposed significant penalties on two companies, as well as their sole director, as a result of proceedings brought by the Fair Work Ombudsman for contravening the Fair Work Act 2009 (Cth) (Act).
Despite relatively minor underpayments of approximately $18,000 among other breaches, the companies were ordered to pay $160,000 in penalties. Significantly, the sole director was also ordered to personally pay a $35,000 penalty.
The Fair Work Ombudsman successfully established that the companies had underpaid two employees, who had limited understanding of Australian employment laws, failed to make superannuation contributions, did not keep employment records, and had sought to incorrectly treat the employees as contractors. Further, when one of the employees sought payment of her wages, she was dismissed in breach of the general protections regime.
In determining the applicable penalties, the Court found:
- The contraventions were deliberate given that the companies had been subject to a Fair Work Ombudsman audit in 2011. That audit had put the companies and the sole director squarely on notice of their employment obligations.
- There was no remorse or contrition. In that regard, the sole director had attempted to deregister the companies during the proceedings, presumably to avoid liability. He also initially admitted to contraventions by the companies but later denied them when he was joined to the proceeding.
- The sole director was nothing more than the alter ego of the companies and attempted to use them as a shield. As such, he was involved in the companies’ contraventions.
- There was a need to deter the sole director from engaging in future similar contraventions, as well as to discourage other directors from also attempting to avoid liability behind a corporate structure.
This decision may have come as a shock to the sole director involved, but in our view, is representative of what we see as an increasing emphasis on holding to account employers and directors involved in contraventions of the Act.
The decision is a timely reminder that individuals involved in contraventions, including directors, can be expected to face prosecution and may personally face fines if they are involved in or responsible for breaches of applicable employment obligations.
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