CASE STUDY: Court’s Power to Order Back Payments Against Directors of Deregistered Companies

A recent decision ruled that a court can make compensatory orders against directors of deregistered companies for underpayment to former workers through the Small Claims Procedures.

Eight international students claimed to have been either not paid or underpaid for work performed in 2017 and 2018 for a director who deregistered his businesses to avoid court-ordered back payments. All eight workers initiated the proceeding under the Small Claims Procedures in section 548 of the Fair Work Act 2009 (Cth). The Small Claim Procedures provision gives a Court power to make compensatory order against an employer to compensate up to $20,000 for a workplace law contravention.

The former director argued that the Court has no jurisdiction to determine accessorial liability under the Small Claims Procedures.

The Court ruled that if it is a person has contravened a civil remedy provision, including by reason of that person being a deemed contravenor, the Court has the power to make any order it considers appropriate, including a compensatory order in respect of unpaid wages.

A person or a company can be held responsible if they were involved in the contravention of workplace laws. This is called accessorial liability and can affect individuals like directors, human resources officers, payroll officers, accountants, etc.

Being involved in a contravention means the person or company:

• assisted, recommended or caused the contravention;
• influenced the contravention, for example, by making threats or promises;
• was knowingly concerned in or was a party to the contravention; or
• conspired with others, which resulted in the contravention.

Considering this recent decision, MBA would like to remind the members that employers can be liable when they have not followed workplace laws.  Liability also includes being responsible for fixing the wrongdoing, such as fixing any underpayments, or paying employee entitlements.

It is important to make sure you know what workplace laws apply to your business and your employees before making decisions on behalf of your company or providing advice to your colleagues.

If you need assistance on applicable workplace laws to your business, please contact our Workplace Relations and Legal Team on (02) 6175 5900.