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Take notice: Directors can be personally liable for underpaying staff


The Fair Work Ombudsman (FWO) is actively pursuing directors who underpay their staff, holding them personally liable for breaching the Fair Work Act 2009 (Act). This blog post explores the potential criminalization of underpayment and the consequences directors may face. It also highlights key legal considerations when determining personal liability.

Criminalization Efforts: The government considered criminalizing underpayment based on the Migrant Workers' Taskforce Report, but the Fair Work Amendment (Supporting Australia's Jobs and Economic Recovery) Bill 2020, which included such provisions, was eventually scrapped. However, some states have enacted or proposed their own laws, such as the Wage Theft Act 2020 in Victoria and amendments to the Criminal Code Act 1899 in Queensland.

Implications and Legislative Changes: Victoria's Wage Theft Act 2020 criminalizes underpayment with penalties of up to 1200 penalty units or 10 years imprisonment for individuals. Queensland expanded the definition of "stealing" to include failure to pay employees, carrying a penalty of up to 10 years in prison. South Australia's Select Committee on Wage Theft recommended making underpayment a criminal offense.

Directors' Personal Liability: Directors can be held personally liable if they are found to be "involved" in underpayment. Recent court cases have shed light on factors determining liability, including knowledge and involvement, willful blindness, the "controlling mind" concept, and practical connection to the contraventions.

Key Considerations:

  1. Knowledge and involvement: Directors need not physically participate but can be liable if they associate themselves with the underpayment. Actual knowledge of the contravention is required, regardless of whether the director knew it was unlawful.

  2. Willful blindness: Directors can be deemed to have knowledge if they deliberately avoid asking questions or making inquiries.

  3. Controlling minds concept: Directors, as the "controlling mind" of a company, can be held liable unless evidence suggests otherwise.

  4. Practical connection: Directors involved in underpayment by allowing unpaid work, turning a blind eye to workers not being paid or offering inducements to remain underpaid.

Conclusion: To avoid personal liability, directors and business owners must understand the legal requirements and establish compliance systems to ensure employees receive fair wages and entitlements. The increasing focus on directors' responsibility necessitates vigilance. As laws vary across states and territories, it is essential for companies operating in multiple locations to stay informed about underpayment legislation developments.

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