Risk of personal liability for poor industrial relations practices
Section 550 of the Fair Work Act 2009 provides that a person who is involved in the contravention of a civil remedy provision (including by aiding, abetting or being knowingly concerned in the contravention) is taken to have contravened that provision, resulting in potential individual liability for civil penalties.
The risk of personal liability is highlighted in a recent decision of the Federal Magistrates’ Court in Fair Work Ombusdman v Centennial Financial Services Pty Ltd & Ors. The case involved an employer’s attempt to re-classify sales personnel as independent contractors rather than employees by entering into “Consultancy Agreements” with those personnel. The agreements provided for the sales personnel to be paid on a commission only basis, rather than receiving wages, without any substantial change to their duties.
The Court found that despite the purported re-classification, the relationship remained one of employment. The employer had contravened a number of provisions of the Workplace Relations Act by misrepresenting proposed employment relationships as proposed independent contract arrangements (section 901), dismissing employees for the purpose of engaging them as independent contractors (section 902) and failing to pay the employees a basic period rate of pay for guaranteed hours (section 182). Under provisions similar to section 550 of the Fair Work Act, the Court found that the company’s director and HR Manager were involved in these contraventions and taken to have contravened the provisions personally.
In considering the personal liability of the HR Manager, the Court recognised that he was ‘little more than a typist’ for the director, and was not the decision maker. The HR Manager gave evidence that although he prepared the agreements, he believed the sales personnel had in fact become independent contractors rather than employees. However, the Court found that it was irrelevant whether or not the HR Manager properly understood or had reason to consider the legal effect of the agreements or proposed changes to the method of engagement or remuneration of the employees. To find that he was involved in the contraventions, it was sufficient that he:
1.knew that the sales personnel had initially been engaged as employees;
2.was familiar with the terms of the agreements, and knew that the introduction of the agreements would see the sales personnel remunerated by commissions and not by wages;
3.was aware of all of the facts which were subsequently found to prove an employment relationship existed between the company and the sales personnel; and
4.was otherwise aware of all material facts giving rise to the contraventions.
The FWO has applied to have both the director and HR Manager ordered to pay civil penalties in relation to the contraventions and separately warned that it expects prudent workplace relations practitioners to understand their responsibilities, describing ‘gosh, I didn’t know’ defences as disingenuous.